Insurance and reinsurance industry M&A deals have picked up a bit in Europe and elsewhere. But they keep declining in the U.S., continuing to deny it the lead in a space it has typically dominated, due to regulatory anxiety and other concerns.
That’s a big conclusion of Clyde & Co’s global overview of insurance M&A activity over the last year.
Clyde & Co. tracked 139 M&A deals in Europe from July 2013 to June 2014, up from 123 over the same period a year ago, In the U.S., 97 deals closed over the same period, down from 113, according to the report, which is based on Thomson Reuters data. Globally, reinsurance M&A deals saw a small uptick in the first half of 2014 after a three-year slide. Asia Pacific deals remained stable, but there were healthy deal jumps in areas including the Middle East and Africa.
Clyde & Co. said that most of the deals globally are being driven by Europe, with other regions such as the U.S. showing flat activity or dipping. That said, the report notes that excess capital remains in the market, the pricing cycle is still soft (other than aviation), and the Eurozone continues to be economically fragile. These factors have all helped prevent more M&A activity, Clyde & Co. noted.
So why are re/insurance M&A deals either flat or declining in most places?
“Contributing factors to this downward trend appear to include differing buyer/seller perceptions of company value, ongoing regulatory uncertainty, the uncertain economic outlook and some companies’ preference to reinvest excess capital into the business or to satisfy shareholders with stock buybacks and dividends,” Doug Maag, a Clyde & Co. partner, said in a statement.
Maag said that the U.S. regulatory environment is a particular problem.
“The efforts by regulators to identify Systemically Important Financial Institutions (SIFIs), and the fact that the criteria for these is still evolving and subject to change, creates an environment which may cause acquirers to pause for thought,” Maag said. “This is particularly key if a potential deal increases the size and profile of the combined entity so it can be deemed to be an SIFI, thus making it subject to a layer of federal regulation with more stringent transparency requirements, restrictions or capital and consumer protection.”
The downward trend in the U.S. may be on the verge of reversing itself, Maag argued, in part because of GDP growth.
“The consistent rise in the U.S. stock markets over the last 12 months may lead firms to conclude that valuations are back at levels at which they would consider safe and, therefore, increase the number of management teams willing to make an offer,” Maag said. “At the same time, the faster than expected growth in US GDP in the second quarter of 2014 may signal a return to a macro-economic environment that could stimulate expansion through M&A.”
Source: Clyde & Co./Thomson Reuters