This article is written by Archana Mohanty who is pursuing a Diploma in M&A, Institution Finance & Investment Laws (PE & VC Transactions) from LawSikho.
Table of Contents
Introduction
Merger and acquisition are business transaction in a contractual aspect based on commercial intent of the parties coming out of the due diligence and negotiation between them which brings benefit to them in accordance with their interest.
Indian insurance industry has been globalised since 20 years and has seen significant growth in the market. Broadly consisting of 57 insurance companies comprising both life insurance and non-life insurance sectors. 24 life insurance companies include one public sector company where 33 non-life insurance companies included 6 public sector companies. Both sectors have been very active in terms of multiple transactions involving investment and promoter stake transfer as well as IPO.
In 2019 major acquisitions of private insurance business occurred. Subsequently, the Government of India announced the merger of public banks which influenced the growth of the insurance sector. The insurance sector became more competitive and attractive for the industrialist to emerge into such sector.
Guidelines to the insurers in order to amalgamate and transfer the business is provided under certain provisions of Insurance Act, 1938. Drafting of the scheme of Amalgamation and approval of IRDA is required to give effect to such scheme.
Bharati AXA’S Non-life insurance and ICICI Lombard General Insurance
The transaction aims to give rise to the country’s third-largest general insurance entity. The demerger will occur between Bharati Enterprisers & Bharati AXA and then will merge with ICICI Lombard’s Business. There will be a change in premiums which is a matter of consideration for policyholders.
The merger will provide a wider chain of network providers which will, in turn, benefit policyholders of both insurers.
As the merger is subject to the approval of IRDAI, SEBI, COI, etc. so the policyholders do not need to worry more.
Axis Bank & Max Financial
There was a definitive agreement signed between these two sectors. In order to become joint venture partners, such transactions will take place.
The first announcement was proposed to acquire a 29 percent stake in Max life insurance for 1,592 crores, a put under was provided under which Axis Bank could sell all its shares to Max financial at 294 per share, which was later removed after resistance from the insurance regulator.
The sources explained that the insurance regulator recently wrote to RBI &SEBI seeking their clearance regarding the same and also got the needed approval for the said structure.
The said deal is acquiring a 19 percent stake in Max life Insurance by Axis Entities which comprises Axis Bank, Axis Capital & Axis securities. Further, these three entities will separately acquire 9 percent(by Axis Bank) while 3 percent by Axis Capital and Axis securities together. Rest 7 percent will get acquired by the Axis entity at a later stage.
Also, Axis bank can wish to sell its stake in max life insurance at a fair market price.
HDFC and Apollo Munich Health Insurance Company Limited Merger
As per the requirement of IRDA Apollo Munich was unable to maintain the liquidity ratio. IN order to improve the profitability there was a need for synergies, cost-saving and capital infusion.
HDFC Bought a 51% stake in Apollo Munich from Apollo Group through which the name was changed to HDFC ERGO Health Insurance Company Limited.
HDFC ERGO general insurance and HDFC ERGO Health insurance into a single entity which got approved in November 2020.
Union Bank & Andhra Bank
Union Bank became the country’s 5th largest public sector lender after the amalgamation of Andhra bank and corporation bank within it. The bank, in turn, will be offering wide terms and services across India especially in southern India. while providing more branches and ATMs to its widespread customers.
The amalgamation will modify and generate cost. It expects to generate cost and revenue synergies to the tune of Rs 2,500 crore over the next three years.
HDFC Life Insurance and Max Life Merger Deal
An insurance company can not be merged with a non-insurance company which in turn violated the provision under section 35 of the Insurance Act.
After Max life insurance demerged from Max India Limited, in 2016 it was proposed to get merged with Max financial. The merger could not take place as it was not got approved by IRDAI citing the above provision of the Insurance Act.
So the proposed merger of HDFC Life and Max Life Insurance which was signed through a definitive agreement between HDFC Standard Life Insurance Company and Max financial service limited was called off by HDFC Life Insurance Limited.
IDBI Bank Deal
It was a move towards acquisition and stake sales in the life insurance sector.
Earlier in the month of August, IDBI Bank got into an agreement with Ageas Insurance International and Federal Bank, its joint venture partners to sell upto 27% of its stake. Notedly 23% stake will get acquired by Ageas while the rest 4% will be sold to Federal Bank respectively. IDBI bank will be handling the rest of 21 percent of the stake.
Paytm & Raheja QBE General Insurance
In the non-life insurance space, there are very few players with a large market share. Facing such challenges in early July Paytm announced a plan to acquire Raheja QBE General Insurance.
Through such penetration, it will manage the operating cost in a better manner with maintaining the solvency ratio.
Punjab National Bank & Canara HSBC OBC life insurance company limited (Merger)
In 2019 when major public banks got merged with by the Government of India, meanwhile Oriental Bank of Commerce merged with Punjab National Bank. At the time of the merger OBC was holding a 23% promoter stake in Canara HSBC OBC Life insurance Company limited which was later acquired by PNB post-merger with OBC.
There was a joint venture company named PNB Metlife Insurance company limited which was formed in 2013 through signing a definitive agreement between PNB and US-based company MetLife, subsequently, PNB acquired 305 stakes in the said insurance company.
Outlooking both the scenario IRDA guidelines provide that a promoter can not hold stakes in two insurance companies simultaneously. PNB still allowed to hold stakes, where IRDA still trying to clarify such circumstances.
Union Bank of India And India First Life Insurance Company Acquisition
In 2009 India’s first life insurance company came into place through a joint venture between Bank of Baroda, Andhra Bank and UK-based financial. In 2019 the Government of India merged Bank of Baroda, Andhra Bank with United Bank Of India which holds a promoter stake in Star Union Dai-Ichi Life Insurance and after the merger it acquired 44% promoter stakes of Bank of Baroda in India First Life Insurance Company.
As per the guideline of IRDA, a promoter can not hold shares in more than one insurance company but recently it permitted Union Bank to hold those shares.
HDFC ERGO General Life Insurance and L&T General Insurance Acquisition Deal
In 2016, HDFC ERGO General Insurance Company acquired a 49% stake from L&T whose subsidiary L&T General Insurance company was occurring losses. After the acquisition, it enabled HDFC ERGO to expand its policies and policyholders by onboarding the policyholders of L&T insurance into it through which it can emphasize the distribution and channelize the offices.
There will be better after-sale services through this acquisition.
Conclusion
There is a chance of a high rise in potential deals through the establishment of high-level executive relationships in insurance sectors. It was found by the insurance industry executives that more than half of the deals expect to complete an M&A transaction in the coming 2 years. There must be specific consideration of factors in order to emphasize the insurance sector while getting indulged in mergers and acquisitions.
The structuring of efficient strategies regarding the corporate growth of a company opens a more clarified way for strategizing the Merger & acquisition deals. insurance companies must calculate the required capabilities & technologies through which the company will step over the required business achievement.
In order to activate the insurance sector in the merger & acquisition field, there should be a playbook for such transactions which will guide a more efficient way. It will be more prominent if the company grabs opportunity on the basis of advice derived from internal &external advisors.
As the business industry in the field of corporate restructuring having a broader scope companies must adhere to the potential impact over the domestic & Global deals. Alongside considering the changing tax implications and changing regulatory compliances.
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