Analysts at Deutsche Bank have commented on last week’s media speculation suggesting UK insurer Aviva is a potential acquisition target, stating that it views a deal for the entire firm has nearly impossible, and even a sale of parts of the business as unlikely.
As we wrote last week, Aviva’s shares increased almost 9% following articles from markets blog Betaville and The Times suggesting a number of European insurer’s were potential suitors of the London headquartered company.
Addressing the noise, Deutsche Bank notes that both articles were unsubstantiated with no sources identified, and that Aviva’s shares likely rose because of the credibility of The Times and the concrete nature of the wording around potential buyers.
Deutsche Bank has also spoken with Aviva, who informed that if it had been formally approached it would need to release a statement per the UK Takeover Code.
“Given that there has been no statement from Aviva, and nor from any potential bidders, we can at least say that no formal approach has been made for Aviva,” notes Deutsche Bank.
Ultimately, Deutsche Bank views a deal for the whole of Aviva as “nearly impossible,” and also feels that even a sale of parts of the business, such as non-life, is “unlikely given the work management has undertaken in reshaping the business.”
“Overall, we note that Aviva is in a much better position today than where it was almost four years ago, when Amanda Blanc joined as CEO,” says Deutsche Bank.
Deutsche Bank highlights the fact that since mid-2020, the insurer has become a much leaner group, having disposed of around £8 billion of non-core operations which saw it exit numerous regions and markets.
For Aviva, the focus is now on its core operations of UK and Ireland Life & Wealth, Aviva Investors, UK and Ireland General Insurance, and Canadian General Insurance.
At the same time, Aviva recently acquired AIG Life Limited from Corebridge Financial, Inc. for £460 million, which Deutsche Bank says supports its view that a sale of certain parts of the business is unlikely as it continues to take steps to improve the shape of the business.
Interestingly, Deutsche Bank also looks at the potential acquirers named in the media articles last week.
“We find it difficult to see a European insurer (Allianz or AXA) looking at Aviva. The former has already built up a position in UK non-life in recent years, and overweighting the UK would not make sense. Additionally, whilst Allianz has the resources, we believe shareholders would prefer to see a more balance split between bolt-on acquisitions and excess capital returns,” explains Deutsche Bank.
Regarding Canada’s Intact, analysts state that while there could be strategic sense in the firm looking at Aviva’s Canada or UK commercial lines, this would be challenging because it’s currently going through the takeover of DLG’s UK Brokered Commercial Lines, and growing its Canadian P&C market share to almost 30% “may be too close to the antitrust boundary.”
Tryg was also touted as a potential suitor, but Deutsche Bank notes the fact it’s integrating the Codan business and therefore may not have the capacity to look at another European non-life business.
All in all, analysts place “a very low probability that it could be a target, despite bid speculation in the media. Indeed, we believe that a deal for the whole entity is almost impossible – as a UK composite, it could be difficult to integrate easily elsewhere.”
