Deal value for global insurance M&A reached €37bn in the first six months of 2018, driven by a slew of megadeals which pushed value to its highest first-half total since the financial crisis, according to a new report from Willis Towers Watson and Mergermarket - Transformation in the global insurance market.
The first half of the year saw 14 deals worth over €500m taking place in this sector; although total deal volume was down to just 84 deals, the lowest number since 2009.
Key deal drivers behind this surge in value relate to the changing nature of business models. As regulatory pressures become the norm, new models are emerging and more businesses are seeking to return to their core strategy.
Earlier in September, U.S. financial services group Marsh & McLennan Companies Inc (MMC.N) agreed to buy Jardine Lloyd Thompson (JLT.L) valuing the British insurance and reinsurance broker at about 4.3 billion pounds.
For private equity investors, record levels of inflow – with cash reserves reaching $1 trillion in 2017 – has driven interest in insurance assets, leading to complex acquisitions from these buyers in 2018.
Private equity firm Bain Capital agreed to buy esure (ESUR.L) for 1.21 billion pounds in August, ending over two years of speculation around the British insurer being a takeover target for U.S. private equity firms.
According to the report regulatory change has played a big role in the U.S., as tax reform in the country has provided an immediate boost to company earnings since the turn of the year.
“We’re seeing a much longer stretch of time from announcement to closing” said Jack Gibson, Managing Director at Willis Towers Watson. “However, debt continues to be cheap, and following the recent tax reforms, US companies have been given a steroid kick. We will continue to see an active M&A market, it’s just a matter of paying the right price and overcoming the hurdles that have led to deals taking longer to consummate and perhaps driving the lower number of deals this year.
There is a growing trend of foreign investment from Asian companies, looking to grow geographical footprint and acquire capabilities. In particular, we will see tactical acquisitions by Asian players in more developed markets and a growing trend across China’s “Belt & Road”.
The period also saw seven deals in the reinsurance sector and Swiss Re (SRENH.S) expects the global reinsurance industry to consolidate as the distinction between insurers and reinsurers become increasingly blurred.