Insurance M&A surge set in 2021
The second half of 2020 saw record deal volume in insurance, despite an expected slowdown, setting up 2021 for a flurry of transactions.
A rise in global deals in 2020′s second half moved overall annual mergers and acquisitions volume to the second-highest total on record, according to Clyde & Co. LLP, which expects this momentum to carry into 2021.
The second-half rally, which set a five-year record for the number of deals closed, crashed expectations that the period would see a low rate of transactions. While the third and fourth quarters saw many deals, overall 2020 volume slightly lagged 2019 results, Clyde & Co. reported.
The previous year had started with M&A activity moving into a holding pattern, but this did not last long, according to Ivor Edwards, head of Clyde & Co.’s European corporate insurance group.
“Strategic players in the market and M&A specialists clearly did not want to be relegated to the sidelines and quickly regrouped to identify and pursue opportunities,” Edwards explained in a release. “Given that remote working does not easily lend itself to negotiations, due diligence, and all the other elements that make up a transaction, the speed with which companies adapted to the new environment was impressive. With deal announcements continuing apace, we expect the level of completed M&A in the coming months to accelerate as re/insurance businesses scent opportunities to build scale, generate efficiencies and reach new customers in new markets.”
2021 deal-making set to soar
Although 2020 saw a drop in the number of “mega deals,” those valued at more than $1 billion, the year closed out with nine such transactions occurring, Clyde & Co. reported. This is a harbinger of renewed appetite for blockbuster deals in the coming year, which will see a widening pool of assets of all sizes attracting acquirers.
“A number of firms are actively pursuing opportunities to exit certain non-core businesses through restructurings, divestitures, and other deal activity, including to free up capital to redeploy to more preferred areas and products in the hardening market,” Vikram Sidhu, Clyde & Co. insurance partner, said. “As a result, legacy transactions will continue to grow and will be a feature of the market in the coming year.”
With a slew of deals announced in recent months, Clyde & Co. anticipates the number of completed M&A transactions to surpass 220 worldwide during the first half of this year. That would be the first time since 2019 that level of transactional volume was reached, and the second half of 2021 is anticipated to see even more closings.
“Despite market hardening, many of the fundamentals driving M&A will persist,” Edwards said, including competition for assets, the need to diversify portfolios, adding digital capabilities, and increase scale and market share.
“The availability of plentiful capital, combined with a deeper pool of targets, will give buyers plenty of choices although we expect them to select acquisitions carefully to ensure the best fit with their strategic objectives,” he added.
Additionally, growing premiums and a better outlook for most lines of business will drive insurers to seek growth opportunities through M&A, some of which might have been put on hold this past year.
“The improving market conditions have seen insurers move to raise capital but are also attracting more funds into the industry, including from private equity, which will help finance more deals,” Eva-Maria Barbosa, a partner at Clyde & Co’s office in Munich, said in a release. “In addition, with interest rates at historic lows, buyers may look to tap cheap debt or deploy cash stored away during the pandemic to fund acquisitions. Meanwhile, the trend of new players entering the re/insurance market, often backed by an established figure with a proven track record capable of attracting significant financial backing, is set to continue.”
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