1. Actual vs. Expected Merger Results
Presented by: Steve Lundregan
Vice President Nationwide Insurance
Presented for: CAS Valuation Seminar
St. Louis, MO
April 10-11, 2000
9/21/2018

2. Actual vs. Expected Merger Results Presentation Objectives
Discuss experiences with M&A and share some of the pitfalls, considerations and surprises encountered
Key points:
Value is in the “business model”
Validate
Implement
It’s all about people!
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3. Actual vs. Expected Merger Results Background
In 1998 alone, there were 101 Property & Casualty Insurance deals totaling $42.8 billion with a median price earnings ratio of 28.5x. (per SNL Securities M&A Scoreboard)
The substantial premiums being paid require extraordinary diligence in all aspects of doing the deal.
Making the deal work becomes as important as getting a good deal.
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Know what you are looking for and what you will do --
The importance of the “Business Model”

4. Actual vs. Expected Merger Results Acquisition Approach
Growth:
Geographic expansion
Distribution capabilities
Auto focus
M&A Objectives (1997)
Profit:
Target ROR
No “Fix-its”
Integration bias
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‘97 Aspiration =$ 1 billion from M&A

5. Actual vs. Expected Merger Results Acquisition Approach
Players:
Nationwide
Nationwide Insurance--
P&C Business Unit
Finance--
Corporate Development
General Counsel--
Legal
Other Support:
Systems
Human Resources
Investments
Tax
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6. Actual vs. Expected Merger Results Acquisition Approach
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7. Actual vs. Expected Merger Results Deals We’ve Done...
Total original
premium=
$1.4 b
These are the deals we did.
As significant, are the deals we did not do. For confidentiality, I can’t name names, but I can give you an example of a deal we did not do and why.
You have to make sure the cultures will mesh. We look seriously at a nonstandard auto company with an aggressive approach to the market on claims. This was a core competence for this company. Since our business model bias is to do claims our way, we decided to walk from this deal. If the target companies approach is not transferable to another environment, walk away.
1997
1998
1999
Distribution Independent Agents Independent Agents Independent Agents
Geography % "Fit" % "Fit" % "Fit"
Products Auto & Home Personal & Commercial Personal Auto & Farm
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8. Actual vs. Expected Merger Results 1997 TIG Deal
Business Model:
Expected Actual
Consolidate staff functions
Grow Independent Agency business
Use Nationwide brand
Exit non-core businesses
Consolidate staff functions
Contracted IA business
Use Allied brand
Exit Battle Creek, MI
Issues:
1. Changed direction
2. The Allied deal
3. Implementation plan ownership
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9. Actual vs. Expected Merger Results 1998 Allied Deal
Business Model:
Expected
Consolidate staff functions
Grow IA business
Exit non-core businesses
Use Nationwide brand
Leverage claims/commercial expertise
Actual
Consolidate staff functions
Grow IA business
Exit non-core businesses
Use Nationwide brand
Leverage expertise
Issues:
1. New Leadership
2. In-separable model
3. Changed view on
integration bias
Financial Benefits
($ millions/year): Expected Actual
Performance Improvements $40-$80 Undetermined
Cost Avoidance $10-$25 $20
Total $55-$105 Low end of range
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10. Actual vs. Expected Merger Results 1999 CalFarm Deal
Business Model:
Expected Actual
Consolidate staff functions
Consolidate operations
Use Nationwide brand
Leverage sponsorship
Consolidate staff functions
Consolidate operations
Use Allied brand
? Leverage sponsorship
Issues:
1. Change in Allied Model
2. Discovered acquisition competence at Allied
3. Will model work in Allied culture?
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11. Actual vs. Expected Merger Results Lessons Learned
Business Model Design Checklist (Value Drivers)
Separable (Will it still work if we take it apart?)
Scaleable (How fast can we grow?)
Transportable (Will it work in a new environment?)
Deliverable (Will it deliver what you want? Can/will we do what we said we would do?)
Flexible (Can the model change if the business environment and/or requirements change?)
What did
we learn about
Business Model
design?
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12. Actual vs. Expected Merger Results Lessons Learned Continued
Business Model Implementation
Critical Success Factors:
Firm & consistent management direction
Business ownership of plans and results
Frequent & frank communication
Effective leadership for commitment (not just compliance)
1. Managing
2. Leading
3. Knowing the difference
What did
we learn about
Business Model
implementation?
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13. Actual vs. Expected Merger Results Conclusion
# 1 Takeaway:
“The bottom line
is the front line”
or…
“It’s the people,
stupid!”
The
“Butterfly Effect”
applies...
9/21/2018