Oliver Bäte can relax and look forward to his presentation at the end of the week. When the wiry chief executive of Allianz, Europe’s largest primary insurer, submits the results of the 2016 fiscal year alongside Chief Financial Officer Dieter Wemmer at the firm’s headquarters in Munich, the figures are likely to be sound.
Even so, the quick-thinking boss may be required to do some explaining to investors and analysts.
Mr. Bäte has a small but serious problem. Hardly any of the investors will really be concentrating on the numbers. More open than Allianz bosses of the past, the top executive has made it clear that his group is on the lookout for a match. “Only a larger company would help us,” he recently said in an interview. His comments awoke fantasies that are now catching up with him.
It was a broad hint, about a billion euros wide, that roused the industry – and has now put Mr. Bäte in an awkward position.
A major takeover would unquestionably be an important step for the chief executive. The group would like nothing more than to land a momentous acquisition. However, the three basic prerequisites for Mr. Bäte are that size and price must be right and it can only be a friendly takeover. And so Mr. Bäte has been searching for over a year for a suitable takeover target – without achieving a breakthrough. So far, either the price hasn’t been right or the company being courted wasn’t interested.
It can’t be denied that a big deal is suited to the times. Low interest rates and a largely saturated market in the western world is hurting insurers.
So what’s to do? Mr. Bäte knows he must soon offer the investors more than just prospects of a conversion to digital and the lowering of costs. After he started in May 2015, he trained his sights on the insurance giant’s complex structures and made digital conversion his prime task. Digitalization is supposed to lower costs and increase revenues. But lowering costs also has an end at some point, as the Allianz boss himself has admitted.
Another problem is that investors consider the insurance industry to be boring and its business model not particularly attractive. A bigger deal would be – if the prices were right – a new and good story on the stock exchange for Europe’s industry flagship, with which Mr. Bäte could awaken new fantasies.
It can’t be denied that a big deal is suited to the times. Low interest rates and a largely saturated market in the western world is hurting insurers. The volume of premiums has been growing slower than economic growth for years in most developed countries. At the same time, low interest rates make financing a deal simpler. Moreover, the strict criteria set by the E.U.’s new Solvency II rules place strict requirements on the capital resources of insurers, which is why economies of scale have become more important.
So there are good reasons for a major acquisition. But although Mr. Bäte’s clear position on possible M&A activities is refreshingly straightforward, they also put him in a tight spot. For example, activities in Allianz’s Munich headquarters have now gained unwanted attention. Potential targets are being whispered about on a monthly basis, which doesn’t make doing business easier. It has already come out that in December Mr. Bäte put out feelers to Australian rival QBE. Likewise, the firm was eyeing up parts of Italian insurer Generali.
Allianz can’t afford to hang around. Other firms are also on the lookout for good deals and its options are limited. That puts the potential acquisition target in a stronger position – and puts an upward spin on the price. So Mr. Bäte needs to quickly say “I do” – or put his plans on ice. He can’t keep the company in speed-dating mode permanently. That creates too much unrest, distracts the company too much from its core business and conveys a less than flattering image to the outside world.
The public image of the company boss could quickly turn from hunter to hunted. The pressure he is under due to the expectations of others is mounting from month to month. The longer Mr. Bäte has nothing to show, the greater the potential will be for blowback. Considering the months of speculation over a mega deal, the impression could arise that he has bitten off more than he can chew if he is left empty handed.
The poet Gotthold Ephraim Lessing recognized that “Both do harm unto themselves: He who promises too much and he who expects too much.” That is a simple truth that should be kept in mind not only by Allianz's investors, but also by the firm’s boss.
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