Characteristics of Property-Liability Insurance Acquisition Targets

Kathleen A. McCullough and Robert E. Hoyt

Journal of Insurance Issues, 2005, vol. 28, issue 1, 61-87

Abstract: This study analyzes the impact of diversification and focus strategies on firms targeted for acquisitions. Based on a sample of acquisitions of property-liability insurers from 1993 to 1997, the study centers on two major questions: (1) whether the diversification or focus decision of the acquirer has an impact on the motivations underlying the selection of a target firm with specific operational and capitalization traits, and (2) whether the target firms are systematically altered on the basis of the diversification or focus aspect of the acquisition. The study finds support for the hypothesis that acquirers select firms with the financial and operational characteristics to meet the diversification or focus needs of the acquirer. The study does not find support for the hypothesis that acquirers systematically alter the capitalization or operational characteristics of a target firm on the basis of the diversification or focus aspect of the acquisition. By controlling for potential self-selection bias and by implementing a definition of diversification and focus that controls for relatedness of the lines of business of the acquirers and targets, the paper is able to extend prior literature in the area. Additionally, the ability to track the financial and operational changes of the target firm following the acquisition allows for a more detailed test of the hypotheses than is possible in multi-industry samples.

Date: 2005
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