Do Some M&A Deals Fall Short? Equator Offers Some Insights

Some analysis of the insurance M&A sector for you;

More than £2 billion of M&A deals in the UK insurance market last year are likely to fall short of expectations, according to analysis by Equator, the digital transformation consultancy.

Dealmaking in the UK market slowed during 2023, with 130 transactions worth £3.3bn taking place over the course of the year. This year suggests an upwards shift in volume, with 94 deals worth £900m logged in the first half of 2024. Recent research suggests that around 65% of M&A deals fall short of expectations, which means that £2.1bn of insurance deals completed in 2023 alone are under-performing. Previous research put M&A shortcomings at anywhere between 70-90%.

Lesley Fordyce, change director at Equator, said;

“There was a well-established acknowledgement that M&A rarely delivered the promised value – but that the answers were equally well-known. The people aspect of M&A deals is like going to the gym – everyone knows they should be doing it, but there are easier ways to spend your time.

“This is a thorny issue that’s been around forever, but we don’t seem to learn the lessons. There are the tangible aspects of a deal – making the numbers work, bringing together systems and processes – which give you a comforting calculation of intended value.

“The bit which makes all of this other stuff actually work, of course, is people. That’s a trickier and less quantifiable thing to tackle, so it tends to be forgotten completely or left until later, by which time it’s too late. The prospects for dealmaking in 2025 look positive, if the upward trend continues. With four direct PE investments into the insurance sector so far in 2024 – twice as many as the whole of 2023 – there are opportunities to focus on delivering additional value.”

Mark Bell, change director at Equator, said:

“No-one is saying this is easy, but we are saying it’s worth it. If you’re putting the money and time into a deal, there’s a disproportionate advantage to spending a little more effort on engaging people right at the start of the process. Bringing new systems and processes into a business often feels like a headache for staff across the business, rather than anything that’s going to help them personally. All of these little things slow down integration, eat into productivity and ultimately stifle the value that you can expect from a deal. M&A is a great way to bring new scale and reach to a broker or an insurer, but in what other area of business would you be satisfied with something that was two-thirds of what it could be?”