Howden M&A, the international M&A insurance broker, has reported that the “boom” in merger and acquisitions (M&A) activity continues to play out as deal makers look to take advantage of the uncertain economic environment.
The broker’s M&A Insurance Claims Report analyses some of the key trends across the UK and Europe, and concludes that the deal market remains highly active with M&A volumes and values in 2022 in-line with pre-pandemic levels.
Howden reports that the notification rate for Warranty & Indemnity (W&I) insurance rose slightly in 2022 to 9%, up from 7% in 2021, and says the long tail nature of claims means this rate could increase over the next 12-24 months, as notifications from the M&A boom of 2021 materialise.
It also notes that more than half of all M&A deals in 2021 took place in the second half of the year, meaning many notifications from this are yet to materialise.
Additionally, while the volume of M&A transactions eased during 2022, there has been a growth in the number of megadeals with an enterprise value of €1 billion or more, and the expectation is that deal sizes will continue to increase, with insurance market capacity rising as new entrants increase the capital available for W&I underwriting of larger M&A deals.
Howden predicts that the increasing use of W&I in the biggest M&A deals will be a significant trend in M&A insurance in the years ahead, providing an opportunity for growth for insurance providers, and delivering security and protection for the biggest dealmakers.
Furthermore, as the global economy continues to encounter significant headwinds, Howden expects the downturn to create opportunities for deal making through both consolidation and transformation.
However, transactions during economic downturns are more likely to result in unexpected outcomes, as businesses being acquired are more likely to be in distress, and acquirers will be keeping a closer eye on cashflow.
In these times, it suggests that policyholders are expected to take a more precautionary approach and will be increasingly ready to trigger a notification when there is a potential for loss.
“As we enter a period of greater economic uncertainty, we expect more opportunities for deal makers to take advantage of current market conditions,” commented Daniel Stock, Managing Director at Howden M&A.
“With such opportunities comes a different set of challenges,” he added. “The value of M&A insurance is clearer than ever in protecting buyers for undisclosed risk that goes to value.”
