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M&A’s drop in first half of 2021: Clyde & Co

26th August 2021 - Author: Katie Baker

Mergers and acquisitions (M&A) in the global insurance industry have dropped back slightly in the first half of 2021 with 197 completed deals worldwide, according to Clyde & Co’s Insurance Growth Report.

Clyde & CoThe report also noted that M&A’s were down from 206 in the second half of 2020 and 201 at the same point last year.

Driven by robust activity in the US, the Americans made 116 deals, which rose from 102, pushing M&A in the region to its highest level since 2015.

After a drop in transactions in 2020, Europe held steady with 51 completed deals in the first half of this year, up one on the previous six-month period.

The UK was the leading European country, and second most active worldwide behind the US, ahead of Spain and Germany.

RMS

Asia Pacific saw completed deals fall from 37 to 18 as post-pandemic and geo-political uncertainty weighed heavy on deal-makers, and Japanese acquirors were again the most active compared to 2020, ahead of India and Australia.

The drop in this activity can be attributed in part to the high regulatory bar in some jurisdictions. Not only do prospective acquirors face higher solvency capital requirements in some markets, but there is a more robust scrutiny of business plans to assess the longevity of new entrants’ interest.

After a standout 2020, which saw a total of 32 deals, M&A activity in the Middle East and Africa dropped back with only five completed transactions in the first half of this year.

These all involved Middle East acquirors, two from Israel and one each from Egypt, Saudi Arabia and the UAE.

Ivor Edwards, Partner and European Head of the Corporate Insurance Group at Clyde & Co, says: “Despite the challenges of the last 18 months, the insurance industry has responded well and demonstrated a remarkable degree of resilience when it comes to getting deals over the line.

“Market hardening is creating organic growth opportunities for re/insurance carriers, but the availability of cheap liquidity, active interest from private equity investors and strategic re-underwriting of portfolios at larger carriers signal that an uptick in M&A is likely.

“The extent of that increase will vary by region and investor sentiment – deal-makers in the US are comparatively bullish whereas their counterparts in Asia-Pacific remain more cautious as they wait for a more positive economic outlook.”

Eva-Maria Barbosa, a Partner at Clyde & Co’s office in Munich said: “Covid-19 has underlined the importance of having digital capabilities and technology remains a primary driver of M&A.

“Many start-ups have matured to the point where they have a proven business model and a robust balance sheet, which makes them very attractive to buyers.

“Meanwhile, on the flipside, the absence of sufficient technology investment on the part of a seller can be a deal breaker – potential acquirors can be put off if they think they need to spend millions to make a target company’s IT systems fit for purpose.”

Vikram Sidhu, Clyde & Co Partner in New York, added: “We are seeing a lot of legacy books being sold off or prepared for sale. The sellers tend to be companies looking to the future in a robust and creative way, trying to clean up their balance sheets and free up capital; they are taking a proactive focus on the next 2, 5 10 years.”

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