With a few exceptions, there has a decline in mergers and acquisitions (M&A) activity in the U.S. insurance market over the past several years- it certainly has not been at the level of activity seen in the 1980s and '90s. This has been driven by three key factors. First, uncertainty about the economic environment and extent of the recovery. Second, financing was less available and for many share buybacks proved preferable. Finally, most companies were focused on improving their internal cost structures in order to adapt to the challenging environment.

Now, as carriers struggle with low margins, intense competition, and the need for sustainable growth, there is greater activity around divesting unprofitable blocks of business, acquiring profitable ones to leverage scale, and entering new markets.  As a result, mergers and acquisitions are again moving up on select executive agendas-not just as a way to grow, but as a way to survive.

For those carriers entering the deep end of the M&A pool, we have a few suggestions and lessons learned from our long history of advising clients in evaluating, selecting, and implementing merger and acquisition opportunities.

These include:

• When evaluating potential opportunities, stick with your core business. Many carriers have excess liquidity even now and arelikely to consider "portfolio plays." That's fine for businesses thatare already successfully operating a portfolio of companies. Forthose who do not, be wary of venturing into uncharted territories.Those may include lines of business which require dramaticallydifferent understanding of risk, underwriting, claims, or distribution.Experimenting with diversification can be a good thing, but take acarefully measured approach in deciding how much you are willingto put at risk.
• Prepare to move quickly. Many of your peers and competitorsare reviewing the same opportunities. Those who can act quickly,accurately, and decisively will win. Those who overanalyzeM&Aoptions may find themselves watching opportunities pass them by-especially now that liquidity is so important to survival.
• Don't be afraid to give serious consideration to businesses with seemingly unattractive operations. Operations which are not up toyour standards are often the greatest opportunities for performance and profit improvement.
• Be thorough in your due diligence. The need to act quickly can also lead to overlooking key reviews. This is not limited to just deal evaluation but also final terms and conditions.
• Leverage your strong cash position if you can. Especially with today's market conditions, going to the capital markets for funding will slow you down and you may end up ceding returns which would otherwise be better passed on to current shareholders.
• Consider IT integration issues carefully before, during, and after the deal. Before a deal can be struck, accurate and timely financial, HR, and operational data is needed. IT compatibility and dependency issues can slow business integration efforts and possibly reduce longer term integration benefits.
• Line up the right team to execute with speed and precision. Integration is hard work and requires experienced resources to realize the benefits expected from a merger or acquisition.
• Don't underestimate the challenges of cultural integration. There is substantial evidence which points to why mergers and acquisitions fail. The #1 reason most noted is the failure to integrate company cultures. Analytically speaking, you can pick the best target but if you don't have the right end-state culture you won't integrate and the projected benefits will not materialize as expected.

These are a few of the key issues you should consider as today's market dynamics put M&A back in play - and these aren't just hypothetical. These are the very issues we are helping our clients work through right now as they pursue divestitures and merger and acquisition opportunities. The need for speed blended with diligence is critical right now. I welcome the opportunity to discuss these key issues with you as you confront them.