Find the right fit
OK, it’s not news, but it’s worth mentioning that an acquisition in excess of $1 billion doesn’t happen overnight. The reason it’s worth mentioning is that, really, it took roughly three years for Farmers to get from thinking heavily about such a move to bringing in 21st Century. Woudstra was in on the process from the very beginning, as he was president and chief operating officer before stepping into the CEO role in January 2009, and for him, there are a lot of components to the process. When you want to acquire, you have to look for a few things: fit, timing, price and a unique opportunity.
The first question you have to ask is what makes a potential acquisition unique. Farmers did customer research and knew there weren’t a lot of fits like 21st Century out there, as it would allow the company to maximize its customer marketing and reach all methods of automobile insurance distribution.
“You will find that there are not many other players that play what I would think of as all different ways of accessing customers, which we believe then puts us in a much stronger position in the upcoming years,” he says.
If you narrow your frame, the first thing you’ll realize is that a good percentage of what’s on the marketplace will come off your radar.
“Certainly if you’re an existing company and you say I’d like to acquire somebody who currently does automobile insurance through what we call the direct channel, there are not very many,” Woudstra says. “So deciding that you want to acquire somebody, again, there’s not a plethora of those companies out there to acquire, and we knew that.”
But once you’ve narrowed your search field a bit, you still can’t go overboard for something that looks right. Setting a price in your mind is an important part of the process. Farmers had its eye on 21st Century for a while, but as AIG’s troubles continued, the price became right.
“When the 21st-AIG opportunity came along because of obviously all of the issues we know AIG has been in — not this business per se but the corporation — we then got very excited about having this opportunity,” he says.
And when you have a unique asset available in your price range, the slow deliberation of the rest of the process has to be put away, as you need to attack.
“This kind of an asset, there’s not many of these that exist, and the ability to buy one in our past and in the future is not very high, so when this opportunity came about, and certainly with the price at which we were able to acquire it, there’s no question that this is a growth opportunity for the organization, for our shareholders,” Woudstra says.
So while this may take time, you can’t sit around when a company that feels like a match is at your price point. If you do, it won’t be around later.
“There’s no question strategically that this is an asset that we need to have, and if we wanted to wait until later, this could be unavailable,” he says.
