Swiss Re Ltd.: Growth Through Acquisition

George Quinn, Chief Financial Officer of Swiss Re Ltd. (SREN)

George Quinn, Chief Financial Officer of Swiss Re Ltd. (SREN), recently revealed that the company is seeking to bolster its financial portfolio through acquisitions in growing markets including China, India, and Brazil. According to Quinn, the moves should result in a cost savings of approximately $300 million by 2015 with $4 billion in cut leverage by 2016. Currently, Swiss Re has no spending caps on how much the company will pay for various acquisitions.

The recent announcement from Swiss Re is a reminder to CEOs and CFOs everywhere about the two ways to grow a business:

  1. Sales
  2. Acquisition

Sales focus primarily on strategic, organic growth. While this method is slower, disciplined sales and a sound overall business strategy can lead to an extremely successful organization. On the other hand, acquiring another business to grow your own organization results in explosive growth.

This warp speed growth is attractive for so many CFOs and businesses seeking to dramatically boost performance and size. For instance, if your company achieves $10 million in annual sales, and then acquires another business that also has $10 million in annual sales, you’ll have immediately doubled the size of your company – in terms of revenue, at least. There are other advantages, such as easily entering a new geographical market and increasing your share of the market. However, this can be an expensive proposition that not only costs resources, but could also result in a loss of control over some areas of your business.

Is an acquisition right for your company, or should you focus more on organically increasing sales?

Using Swiss Re Ltd. as a teaching model could help you decide your own strategy. Before eyeing the acquisition, Swiss Re had the goal of increasing the corporation’s exposure to particular areas of the world. Acquisition of various businesses was the most cost-effective and practical way to accomplish the goal.

Likewise, organizations, CEOs, and CFOs that have a specific reason for pursuing acquisitions have a greater chance of success. Furthermore, a detailed financial analysis comparing the cost of the acquisition and ROI versus the cost of pursuing growth organically could result in the backbone of a final decision.