Adam: Hello and welcome to PwC Canada's newest podcast, Finance in 15, a series that explores finance transformation and what it means for leaders in the finance function. My name is Adam Boutros, and I'm your host. Hello and welcome back to Season 2 of Finance in 15. For our new listeners, Finance in 15 is a PwC Canada podcast that explores finance transformation and what it means for leaders in the finance function. Today, we're going to explore an area that's an ongoing opportunity and challenge for many CFOs, acquisitions and what a successful post-acquisition outcome looks like. I'm very pleased to be joined by Louis Marcotte, the CFO at Intact Financial. So welcome to the podcast, Louis, and I'm really looking forward to our discussion today.
Louis: Good morning and happy to join you, Adam, today and be part of this Finance in 15 podcast.
Adam: All right. Well, let's dive right in. And Louis, maybe you can start by telling us a bit about your role at Intact in your company for some context.
Louis: So Intact Financial Corporation is the largest P&C (Property & Casualty) insurer in Canada. It used to be part of ING Group. It became independent back in 2009 when we went through the financial crisis. So we've been on our own and publicly traded since then. I've been the CFO of the company for now eight years and with the company has been about 17 years so far. So I have personally oversight of all the financial matters regarding the company. Some of these are directly under my responsibility. Other ones are indirectly under my responsibility. And I would say I spend most of my time essentially on integration of acquisitions, performance management, some M&A (Mergers & Acquisitions) work that we continuously do, investor relations quite obviously, and then more recently some heavy technology transformation work and finance as well as balance sheet management.
Adam: So maybe you could start with a brief synopsis of your recent deal activities and talk about how you start when you make an acquisition.
Louis: It all starts with our financial objectives. And if one reads a bit of our investor documentation, you'll find two main objectives. One is growing our operating earnings per share by 10% per year. And the other one is, are we, our performance that we target to beat the industry by 500 basis points a year on ROE. So why is that important? First, the growth objectives obviously forces us to grow. And although we like organic growth, organic growth won't get us 10% a year. And particularly where your main market is Canada, the industry is not growing at a pace close to 10%. So we have to complement that with additional acquisitions. And the key part here is we stick to our expertize, which is P&C insurance. So it's not like we're in a serial acquirer. We've been a serial acquirer in P&C, essentially. And therefore, our expansions in other markets have been done in the P&C sector. So we've been very disciplined at sticking to our guns, sticking to our expertize, consolidating in Canada first and now putting our feet abroad. And the idea of going abroad is our view is at some point we will have consolidated what is accessible in Canada. And if we want to maintain the 10% growth trajectory, we've got to go outside the country. And that's why we started putting our feet a bit outside as part of our growth strategy.
Adam: As Canadians in the corporate world, we're proud to have a Canadian company stepping up on a global stage and really making their presence felt. So congratulations on that. Now, you mentioned discipline in terms of looking at acquisitions. And, you know, can you expand on that a little more? Just thinking through due diligence planning, like how do you make sure these acquisitions are successful?
Louis: First step is the IRR being able to meet our hurdles and passing transactions that don't meet the hurdle. And keep in mind here, you know, you can grow, but you might not beat the ROE (Return on Equity) target that we set for ourselves this outperformance target. So it's important that you have both the capacity to grow earnings so you'll get those through synergies or value creation. But then you've got to be careful on price to maintain the ROE that you want to deliver and that requires a lot of discipline and the ability to pass on transactions where those metrics are not respected. Then it's all about execution. And I mentioned we stick to our business, which means that when we do an acquisition, it's easier for us to integrate because we sort of know the playbook. I mentioned 18 acquisitions in the past. We have a pretty good playbook on integrations. And what we are really keen on is going very, very, very fast and we pull out the same playbook every time we adjust a bit for the target. We're acquiring that type of business, but we follow the same kind of recipe over and over again. So it's planning the transaction early on. Then when we actually announce and there's a in our case, a period of I'll say float when we're waiting for the regulatory approvals during that period, we try to advance as much as possible our planning process. We also the due diligence will take place before and after and you know, the contacts with the with the target and we use that due diligence to plan our integration. At that point, we should be in a state where we were not surprised too much by what we find, but what we're looking for is the ability to integrate as fast as possible. Then we target once the transition or the approval is received, trying to be ready out of the gate immediately after the closing of the transaction so we can really be fast and integrate integrating the business. And I think that's key when I mentioned getting the return. We're big believers that the speed at which we execute actually delivers the returns that we expect because you can leak a lot of earnings if you're not quick out of the gate to integrate the business and start picking up the value that you've acquired as quickly as possible.
Adam: I've certainly heard before that some of the benefits of that speed is that there's a lot less time spent on people just not really knowing where they stand in the organization and what their role is going to be. And so there is a big element around people culture for an acquisitive company. What are your thoughts in that area? How do you sort of make sure people are in the boat at all going in the right direction?
Louis: When we do the due diligence, there is obviously an evaluation that there is a culture fit, that we can work together and we will not be fighting uphill all the time. And then I will say when we do the planning, the integration planning, we work together with the team that's being acquired. And it's really been important for us the idea approach and it might look canny but the best of both worlds approach. And we're big believers that when we target a company there is a lot of talent in the company that we're acquiring and we should make sure to pick up that talent and add it to our own teams. And by working together during the planning and integration planning process, we're able to identify key players in the group and make sure that those people have a place in the company once we move on and execute on the integration. So that's a key element for us. We try to target for everybody to have certainty. And I talked about removing uncertainty for people. That's a key point for us in the integration as quickly as possible. And I will say the feedback from that is what is most appreciated.
Adam: Yeah. Well said. And yeah, I think, you know, certainly that has been one of the keys to the success that we see across the market. So maybe shifting gears a little bit here, maybe we can get into data analytics, the information that you're relying on to first make acquisitions, identify the right targets, and then secondly, how to bring it all together once the acquisition closes. How do you kind of view the technology and how to bring it all together?
Louis: Sure. So the technology I will see from a targeting point of view is fairly limited. You know, you'll go for publicly available information, possibly some privately available information through bankers and such. That's not where technology has been useful for us. I will say two areas. First, during the planning process, we do a lot of evaluation of rate adequacy and so we'll compare the rates for similar profiles in our business with those of our of the target where the pricing land so that we have a sense of the challenge ahead of us in terms of integrating the businesses into our systems. So here we're literally running, you know, the targets, typical policies on our system to see where the algorithms will land and what kind of dislocation and pricing we'll have. And then post-closing, we've taken the view of, particularly in Canada, where we can migrate into our systems, is to do that as quickly as possible. Generally speaking, when you're into personal insurance, whether it's home or auto, it's fairly simple. The products are not hugely different. So you can migrate the policies into your system as quickly as possible. And literally, we start that 60 days after closing and actually 60, because you need to give 60 day notice to a customer before migrating them to your own company's platform. And so the other choice we make is using our platforms. And I've seen situations in the past where the target has a better system but fewer transactions, and it's harder for us to actually try to migrate the big business on to the smaller companies system and then, you know, do a double transformation if you want. We actually choose to migrate everything on our systems and then if we want to improve those systems, it will be a subsequent transaction when everybody is on the same system.
Adam: It continues to fit with this theme of plan well and execute quickly. So I can sense that coming through loud and clear. So, you know, maybe we'll if it over for the back office finance function in rolling up financial statements. Certainly that's under your purview as the CFO. And, you know, maybe in the context of acquisitions, maybe even just intact itself, being a, you know, world class finance function. What do you think the keys are to speed up the closed transform the closed process, keep it efficient? How do you tackle that as an organization?
Louis: I'm a believer that speed brings efficiency. That you're not creating more work to shifting work from post months to prior to the months, for example. We don't close earlier to meet the deadlines or closing processes. Went for 4 to 5 days right now for a fairly big business. What's underlies that really that to me is the most important is the belief that the faster managers are aware of the results, the faster they'll take action. That's what drives are the desire for speed, not much else. It's really putting information in our leaders hands and getting them to act on it. And I'll come back to execution. It's the same concept. People get information. They should be able to act upon it. We have, actually, so I said we reported in 4 to 5 days. That's internal reporting are external reporting on a quarterly basis comes out. I will say, 4 to 5 weeks after quarter end. We're not in a rush to get out there faster. But 4 to 5 days is good for people to get the results. Now, having said that, we actually have a process where we forecast the results every week. And it's quite interesting when we integrate new companies, the reaction of the target is always like, these guys are crazy. This is the insurance business, how can you forecast so often? But the reality is, you know what, people keep their thumbs on the business. They keep it pulse because they have to think about the forecasts and how things are happening. So if you believe in speed, you can wait for the close four or five days afterwards and then act upon the results. But you can actually go faster if you know that some of your indicators in our in our example claims volumes coming in are higher. Well, you don't have to wait for a month then to act. You can actually act upon the forecast. So it's all driven around execution again. It's get the numbers, they're not perfect, but if they're telling you something's going wrong, take action now.
Adam: Fascinating, Louis. And you know, linking it back to really what matters and, you know, using the information to run the business on a timely basis, that's, you know, you'll get a lot more traction that way. So as we're getting to the end of our podcast here, be great if you could summarize for our listeners a few areas that you think CFOs should focus on during their acquisition cycle and, you know, just share some of what you learned through your experiences.
Louis: I would say what comes to my mind. I repeat discipline. That's important. Don't it's easy to go out and buy and get excited with an acquisition. Keep your metrics. Keep your hurdles. Be disciplined about it. Plan, plan, plan. And you can anticipate a lot about what's going to happen. So plan in over plan and continue planning. Focus on integration and work with the target is really key and then execute fast. The value comes from speed. So you've got to be brutal about execution. And you know, when I talk about discipline, it's when you plan the acquisition and you expect some returns, well, when you actually execute monitor against what you were planning. And that's really key. And don't let go. Don't let any leakage. Drive what drove you initially to that transaction. So I'm a big believer that the value creation is really a function of time. And time is money for real.
Adam: All right. Very well said, Louis. And a great way to wrap up our session here. It's been excellent speaking with you today. Thank you for your time and thanks for joining us.
Louis: Thank you. It was a pleasure.
Adam: So if you'd like more details on value creation acquisitions, many of the things that Louis touched on, please visit our PwC Canada Deals web page, where we have some great insights on these topics and the most recent M&A industry trends and outlook for 2022. At PwC Canada, we're a community of solvers, and we believe finance has a critical role to play in helping organizations succeed. If you'd like to be part of our CFO Community of Solvers, please reach out to me and we can get you involved. I hope you enjoyed our sixth episode of Season 2. We'd love to hear your thoughts on the series, so please be sure to subscribe. Share and leave us a rating or review. I'm Adam Boutros and this is Finance in 15.
