Deals & Mergers Continue To Thrive, Says New Report from Clyde & Co

The logo of Europe's biggest insurer Allianz SE is seen on the company tower at La Defense business and financial district in Courbevoie near Paris, France, March 2, 2016. REUTERS/Jacky Naegelen/File Photo

Mergers and acquisitions (M&A) in the global insurance industry rose in the first half of 2019 with 222 completed deals worldwide, up from 196 in the second half of 2018, according to Clyde & Co’s Insurance Growth Report mid-year update, released today. This marks the biggest increase in the volume of transactions since H1 2015 and the fourth consecutive six-month period of growth.

While the Americas was the most active region with 93 deals, up from 92, the biggest increase in activity was in Europe, which saw an 40% increase in M&A with 88 completed deals compared to 64 in the previous six months as companies move on from the diversion of Brexit preparations. France was the leading European country – and second most active worldwide behind the US – ahead of the UK and Spain. There were 38 deals in Asia Pacific marking the fourth consecutive period of rising deal volume to the highest level since 2015. Japanese acquirors were again the most active ahead of Australia and India.

Ivor Edwards, Partner and European Head of the Corporate Insurance Group at Clyde & Co, says:

“Despite recent signs of market hardening, delivering a positive result for shareholders remains challenging and M&A is an attractive strategy to deliver growth for re/insurance businesses around the world. In Europe, now that the majority of re/insurers are Brexit-ready, they have been able to divert management attention back towards their growth ambitions. As a result, we have seen a surge in completed deals in 2019 that had been put on hold. Deal-makers elsewhere have been buoyed by a combination of strong economic growth, notably in the US, and positive growth prospects for the insurance sector, especially in Asia Pacific.”

Key M&A drivers are shifting

Mega deals remain a feature of the market

There were 11 transactions valued in excess of USD 1 billion in H1 2019 compared to 18 in the whole of 2018, although there is a question mark over whether this trend can continue. Edwards, continues: “The search for scale is still a key factor as leading players seek to deliver cost synergies in addition to new distribution channels and customers. However, there is a limited pool of targets at the top end of the market and it may become increasingly difficult for buyers and sellers to come to an agreement on valuation. We have seen a dip in large deal announcements and this will likely translate into fewer big-ticket transactions completing in the second half of the year.”

New cross-border targets

Cross-border M&A activity continued apace in H1 2019 with 63 deals representing 28% of the global total as re/insurers look to extend their reach into new territories. But geographic focus is shifting – after a number of years of inbound activity the pool of targets in Bermuda is shrinking.

Just one deal involving a Bermudan target closed in the first half of 2019 – Apollo’s USD 2.5 billion acquisition of Aspen. Meanwhile, European targets accounted for almost two-thirds of cross-border targets in H1 2019. Joyce Chan, Clyde & Co Partner in Hong Kong says: “Planting a flag overseas can deliver a short-cut to growth, especially for re/insurers whose domestic markets are saturated and ultra-competitive.”

overview france insurance market

Technology is a constant

Regardless of location, technology remains the most important emerging driver of M&A. H1 2019 saw technology investments around the world including USD 90 million into insurtech Singapore Life from Japan’s Sumitomo Life; USD 45 million from a US investor group into Paris-based Alan – a software-as-a-service startup for the health insurance market; and a similar amount into Pie Insurance, which offers US workers’ compensation insurance online.

Kathrin Feldmann, Counsel at Clyde & Co in Dusseldorf says:

“While these investments may be relatively small, especially in comparison to the value of the larger, big-ticket M&A, they retain tremendous strategic importance. Technology can unlock access to new distribution routes, markets and customers, while at the same time delivering substantial efficiencies, resulting in a dramatic impact on the balance sheet. We expect to see a continuing surge in insurtech tie-ups, joint ventures and partnerships, and more involvement from tech companies entering the insurance market.”

Outlook varies by geography

Brexit-driven deals could be short lived

Despite the rush of European deals in the first six months of the year, it is unlikely that this high level of activity will persist. Edwards says: “Although the operational uncertainty around Brexit for re/insurers has lifted, resulting in the wave of deals we have seen, the economic uncertainty remains. This is likely to intensify in the coming months and deal-makers will likely revert to caution mode as they await the details of the withdrawal agreement, which will have a temporary slowing effect on M&A. We expect a drop in deals in the second half of the year in Europe.”

US deal-makers likely to be increasingly wary

While the US remains the world’s busiest country for insurance M&A, it saw its third consecutive drop in H1 2019 with 66 deals completed.

Vikram Sidhu, Clyde & Co Partner in New York, says: “Although US insurance M&A continues at a steady pace, there is growing geopolitical and financial uncertainty that is causing US dealmakers to pause. We are seeing, for instance, a cooling on cross-border deals as potential acquirors wait to see how issues such as trade disputes might unfold. It is likely that US insurance M&A deal activity will cool down in the second half of 2019, although certain areas such as insurance agency acquisitions are likely to continue strongly throughout the year. After that, M&A dealmakers will see how the dust has settled and take stock of available opportunities.”

singapore life insurance investment IPGL

Asia gaining momentum

Asia Pacific saw its fourth consecutive period of rising deal volume in H1 2019, taking M&A activity to its highest level since 2015. India was the stand-out market, where recent legislative changes are starting to translate into M&A, including the largest deal of the year worldwide so far – the acquisition of IDBI Bank by the Life Insurance Corp of India for USD 2.8 billion.  Chan, continues:

“The breadth of opportunity in Asia Pacific was underlined in the first six months of the year with acquirors from 11 nations completing transactions. Inbound activity was also up, in a trend we expect to continue. Meanwhile, in China, a slew of new regulations has led to a spike in interest from foreign insurers and we expect a number of significant transactions to emerge in the second half of the year.”

About alastair walker 12131 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

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