European insurance M&A deals at an all-time high
Most acquisitions so far in 2022 have been made by broker consolidators with private-equity backing
Investors continue to pursue opportunities to deploy unspent capital despite this year's geopolitical tensions and economic turmoil
European insurance merger and acquisition (M&A) deals reached an all-time high in the first nine months of 2022, according to a new report.
Deal volumes increased to 292 in the first three quarters of this year, compared to 280 in the same period in 2021 and 190 in opening nine months of 2020, the report by FTI Consulting found.
The upward trend in M&A deals is driven by investors pursuing opportunities to deploy unspent capital despite this year's geopolitical tensions and economic turmoil, including the rising cost of debt financing.
“Despite challenging market conditions and macroeconomic uncertainties, insurance intermediaries continue to face competitive auction processes and valuation multiples remain elevated, demonstrating the resilience of this sector,” said André Frazão, associate partner in the global insurance services practice at FTI Consulting.
Most acquisitions so far in 2022 were made by broker consolidators with private-equity (PE) backing, and strategic buyers accounted for around a third of transactions across Europe, down from almost half in the second quarter.
The appetite for distribution and service deals persisted with 38 acquisitions by PE-backed portfolio companies and 12 directly by PE funds.
There was a slight dip in European transactions in the third quarter of 2022, with 76 deals, compared to 78 in the same period of 2021. This can be attributed to economic turmoil and the rising cost of debt financing, FTI Consulting said.
The UK and Ireland led the European insurance M&A market, accounting for 40% of the total deals in the third quarter of 2022. Germany, Austria, Switzerland, France and the Iberian region saw the greatest increase in deal volumes during the reporting period.
Deal activity in the Benelux and Nordic countries decreased relative to previous years despite noteworthy transactions such as Cinven’s purchase of Nordic broker consolidator Säkra. The ongoing crisis in central and eastern Europe likely contributed to the slowdown in deal activity across the region.
FTI said that rates have continued to harden for business classes that are experiencing claims inflation, lack of capacity and higher frequency and severity, such as property. In addition, Europe is struggling with an energy crisis mostly because of Russia’s reduction in gas supply. The combination of an energy crisis and extreme weather events are causing “pivotal shifts in demand for property, cargo, business interruption and energy-related insurance”.
At the same time, rising interest rates continue to pose a potential threat to the buyouts markets as debt financing becomes more expensive and the threat of recession looms.
American PE companies and strategic buyers remain interested in the European brokerage and services sector. In the third quarter, 10 acquisitions had US-based bidders, taking the total to 38 for the year-to-date. A strong US dollar may encourage further US takeovers.
The consultancy company predicts that PE and strategic buyers are likely to target brokers and carriers with a track record demonstrating their ability to adapt to evolving macroeconomic dynamics.
