M&A shakes off ‘post-pandemic doldrums’, but clouds linger

Levels of insurance-related mergers and acquisitions (M&A) activity may have shaken off the “doldrums” triggered in the global COVID-19 pandemic with a backlog of deals starting to come to market. But the picture remains a dynamic one and could change quickly.

That is the broad conclusion of reports by two brokers into insurance M&A globally. “Dealmaking in the first half of 2024 suggests the market may be ready to shake off the post-pandemic doldrums and return to pre-COVID-19 levels and deal behaviour,” Jana Mercereau, head of Europe M&A consulting at global broker WTW said of the H1 2024 M&A performance in an April 2024 report titled “WTW’s Quarterly Deal Performance Monitor (QDPM)”.

“Rising market confidence on the back of expected interest rate cuts, improved financing conditions, low volatility and narrowing valuation gaps, will help uncork the deal backlog,” Mercereau added.

Deals valued over $100 million surged to 166 globally in Q2 2024, matching Q1’s tally and marking a 25 percent increase over the 130 deals in Q2 2023, the QDPM revealed.

“Dealmakers will need to reduce their exposure to risk by exercising a high degree of caution.”

Also in Q2 2024 there were 35 large deals worth over $1 billion, marking the third consecutive quarterly rise, up from 34 in Q1 and 32 in the prior quarter. Four mega deals, worth over $10 billion, brought the total to nine this year, compared to three in H1 2023, WTW analysts said.

Intra-sector deals jumped from 57 percent of total M&A in Q1 2023 to 74 percent in Q2 2024, analysts noted, attributing the trend to sellers shedding non-core assets and buyers consolidating their markets.

Mercereau remarked: “Despite an upswing in deal numbers so far this year, the threat of stubborn inflation, high interest rates and uncertainty surrounding the US Presidential election still risks puncturing dealmaker confidence and the fragile resurgence in M&A activity. 

“For this emerging M&A rebound to take hold, dealmakers will need to reduce their exposure to risk by exercising a high degree of caution, focus on ‘best-fit’ deals and thorough due diligence that allows for extended timelines, combined with a plan for successful integration that maximises M&A value.”

Insurers ready for deals

Analysts at global broker Gallagher echoed the sentiments in its mid-year M&A reading, “Global M&A Insurance Mid-Year Market Update 2024”, published on July 30.

“The M&A insurance market is soft but could turn at any moment. We witnessed this in 2020 and 2021, when insurers were unprepared to deal with the sudden influx of deals, and rates nearly doubled in a few months,” analysts said, noting however that this is unlikely to recur to the same extent, as insurers are now “well-resourced” and ready for increased deal flow.

According to Gallagher’s global dashboard, M&A levels are up 23 percent year-to-date compared to 2023, with mega deals valued over $10 billion, rising 75 percent year-on-year.

At present, more than 50 insurers are in active competition, including new entrants, analysts indicated, but they warned that the statistics should be viewed cautiously, given the context of the M&A downturn since mid-2022, which led to 2023 producing the lowest deal volume in over a decade. 

“Many of the political and economic factors that contributed to uncertainty still apply today, making many businesses not yet sale-ready,” analysts added.

In the UK and the US, the 2023 M&A downturn drove warranty and indemnity/representations and warranties premiums to record lows at 0.4 percent in the UK and below 2 percent in the US. 

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