In the largest M&A transaction since the "insurtech" market emerged in 2015, Prudential Financial has announced its acquisition of Assurance IQ. Assurance is an online direct-to-consumer insurer that is just 3 years old and Prudential Financial's purchased the business for $3.5 billion, including a $1.15 billion earnout.
The acquisition metrics are impressive. As per Prudential's analyst call on the day of the announcement, Assurance IQ made revenues of $120m in 2018 (just 2 years after being founded), and expects to make $500m in 2019, $700m in 2020, and $1bn in 2021. The purchase price represents an 11x multiple on 2021 EBITDA of $200m (assuming the company maintains its EBITDA margin of 20%).
The growth story is even more impressive considering Assurance did not raise any VC funding. The company's revenue generation is unsurpassed in insurtech and the transaction marks the first mega acquisition in the space.
The strategic rationale for Prudential is that Assurance IQ provides the technology and digital marketing know-how to address the broader mass market, a segment where Prudential has been relatively weak.
Prudential's share price closed 3% higher on the day of the announcement compared to the broader market at 1%, providing important investor validation of the strategic rationale and financial metrics.
This acquisition shows public market investors understand that incumbent insurers need a credible online capability and may need to buy rather than build. That is good news for founders, investors, and incumbents alike.
The deal is part of a broader trend of large insurers increasingly betting big on new-age, Silicon Valley startups that are starting to disrupt the traditional insurance space.