Editors' Cuts

Are You Prepared for More Software M&A?

Carrie Burns
Insurance Experts' Forum, March 11, 2013

In just one week the industry saw three large software provider acquisitions: Applied Systems will acquire IVANS’ P&C business, SAP plans to acquire Camilion and Insurity will acquire AQS. That’s a lot to take in and analyze in one week and leaves many of us wondering a few things: What does this mean for insurers that are current customers and is there more of the same to come that insurers should prepare for? Many industry experts say yes.

These players have a large presence in the P&C industry. SAP’s acquisition is the first serious move into the insurance vertical solutions space by a global technology firm since Oracle bought AdminServer and Skywire in 2008, according to a recent report from Novarica that offers an overview of the main participants and information about these recent transactions and identifies some possible activity in the future. Is this a sign of larger players entering our world and is the insurance vertical applications space evolving?

According to the Novarica report, “Insurance Software M&A 2013 Q1 Update," these recent acquisitions and the early 2012 IPO of Guidewire have provided hope for investors in the sector that a strategic acquisition is not their only potential exit.

And more investment in insurance technology will advance the industry, right?

The report breaks down the insurance vertical applications marketplace to include three groups: portfolio players (sell multiple solutions or sets of solutions), independent software vendors (ISVs) (mostly privately held companies that tend to focus on a single solution or set of closely linked solutions in the Novarica’s Core Systems Map), and tech giants and financial investors (the larger companies serving a number of industries). And Novarica predicts continued M&A among these for 2013-'14.

Does the industry sit and wait for these things to happen? Novarica’s report recommends insurers stay informed: “Understand which category the ISV providers are in, who is likely to buy them and why.” For example, acquisitions of companies that enter the market with a new approach and quickly gain traction or those that are founder-controlled and have a solid but not rapidly growing customer base are likely to result in increased investment in the product. And acquisitions of product providers that have stable or slowly eroding customer bases that generate maintenance and services revenue but are not adding new clients to their outdated products are likely to results in forced conversions or migrations. “Insurers should protect themselves as much as possible through contractual means, including demanding base code escrow and service level guarantees that survive change of control,” the report states.

So, I’m asking you, insurers: How do you, or do you, “prepare” for solution provider M&A?

discussion on this topic has been started on our LinkedIn group. Become a member and share your thoughts.

Carrie Burns is editor-in-chief for Insurance Networking News.

Readers are encouraged to respond to Carrie by using the “Add Your Comments” box below. She also can be reached at carrie.burns@sourcemedia.com.

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

Comments (3)

Tech M&A is off to its fastest start since 2006.
We see at least 7 reasons Tech M&A 2013-stays
strong
1)extraordinary change, interelated megatrends
2)strategic buyers have record cash, $400 billion
3)debt is lowest cost ever
4)private equity sitting on over $1 trillion
5)new foreign buyers
6)entrance of non-tech buyers
7)most US buyers cash is international

no question, it is a tailwind for prepared, relevant sellers.
Ed Ossie Corum Group -

Posted by: Ed O | March 11, 2013 4:38 PM

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I fully agree with Carrie's views and I also see this as an emerging trend in 2013. This becomes important because there are cautious signs of improvement in global economy- more in US. With a cautious optimism, all the big players need a strategy to grow and remain competitive in the market. This M&A process will be a trigger in this direction. This will not only provide vendors the speed to market but also well aligns with the improved market sentiment.
I am also of the opinion that big players are sitting on piles of cash and they need to channelize this for more remunerative avenues and this will be good opportunity for the software providers to start with.

Posted by: Rakesh s | March 11, 2013 1:31 PM

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I fully agree with Carrie's views and I also see this as an emerging trend in 2013. This becomes important because there are cautious signs of improvement in global economy- more in US. With a cautious optimism, all the big players need a strategy to grow and remain competitive in the market. This M&A process will be a trigger in this direction. This will not only provide vendors the speed to market but also well aligns with the improved market sentiment.
I am also of the opinion that big players are sitting on piles of cash and they need to channelize this for more remunerative avenues and this will be good opportunity for the software providers to start with.

Posted by: Rakesh s | March 11, 2013 1:30 PM

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