Insurance-sector mergers & acquisitions drop for the first half of 2023
A new report from Clyde & Co examines the decline in M&A around the globe.
The international insurance industry saw a marked drop in the number of mergers and acquisitions (M&A) throughout the first half of 2023, according to Clyde & Co’s Insurance Growth Report mid-year update. The first half of 2022 saw 242 completed deals, but that number dropped 29% to 171 for the same period in 2023.
The decline varied by geographic area, with the most significant drop occurring in the Americas, which saw only 79 deals in the first six months of 2023 as compared to 104 for the second half of 2022, or a 24% change. The U.S. market was still the strongest around the globe for M&A activity, with 60 completed transactions, although that was still a 27% decrease from the 83 deals that occurred in the second half of 2022.
Transactions in Europe reached their lowest level in more than a decade, with only 43 occurring in the first part of 2023. The Asia Pacific market saw a smaller drop in M&A with 33 deals as compared to 29 in the second half of 2022.
The Clyde & Co report attributes some of the drop in activity to “a diminishing appetite in some regions for insurtech businesses,” however, interest from private equity firms looking to invest in insurtechs varies by country. Finding capital for them in Europe has proven a challenge due to continued inflation and increasing interest rates. In the U.S., there have been fewer insurtechs entering the market. However, entities in Latin America, Asia, Indonesia, Vietnam, the Philippines, and Thailand have seen strong interest in investing.
Joyce Chan, partner at Clyde & Co in Hong Kong said in a press statement, “Private equity firms are looking at investing in some of the Asia tech players around the region, at all stages of development, with prospective capital providers fairly evenly split between international PE firms and regional asset managers. Meanwhile, as the use of AI in insurance becomes better established, investment is likely to return to insurtech in other regions as the sector best-placed to leverage emerging technology.”
As an increase in cyberattacks continues to plague businesses and insurers, the risk is also becoming a growing focus when it comes to M&A. Due diligence surrounding companies involved in a deal has become a top five concern (down from a top 10 issue) for dealmakers. Warranties, exclusions and broadly worded existing agreements could affect any post-transaction issues that arise.
Rosehana Amin, a Clyde & Co partner in London said in a statement, “A real risk of cyber incidents is the nature of interlinked systems when there is a compromise and the related legal issue of who is the data controller. When a purchaser acquires the target company’s data, will the contract make it clear who retains the responsibility? Is there an understanding of legacy data that it might be acquiring? If data is compromised, the relevant entity may be subject to scrutiny and liable for potential regulatory fines.”
M&A activity is not expected to return to the levels of 2022, however, there is an expectation of increased growth for the balance of 2023.
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