Insurers globally saw the number of completed mergers and acquisitions drop 13 percent in 2016 compared to the previous year, with political uncertainty and previous consolidation efforts slowing the trend down. But the dip appears to be a blip because market conditions driving M&A activity have continued unabated, Clyde & Co. said in a new report.
There were 387 completed M&A deals in the global insurance industry in 2016, versus 444 in 2015. Clyde & Co. said 186 transactions were in the 2016 second half, versus 201 in the first six months of the year. Interestingly, 12 of the top 20 completed deals by value (60 percent) in 2016 involved an Asian-based acquirer, mostly from Japan and China.
The 2016 M&A numbers were at their lowest since 2013. Clyde & Co. blames this on factors including higher levels of political uncertainty, with factors such as the U.S. presidential election and Brexit leading to “caution among dealmakers.” The market also needed to pause to absorb 2015 big-ticket transactions before gearing up for the next round, the firm said (kind of like taking time to digest a big meal).
That pause ended in 2017, and the search among insurers for acquisitions and to be acquired should continue unabated due to a continued soft market, a push for technological innovation and other factors, said Andrew Holderness, global head of the Corporate Insurance Group at Clyde & Co.
“After five or six years of difficult trading conditions, we can expect to see a higher proportion of distressed businesses being put up for sale,” he said in prepared remarks. “Brexit will also be a key driver as smaller businesses will go to market if they consider it too difficult to continue operations in dependently after the UK leaves the EU.”
As well, Holderness said, regulations should also spur more M&A transactions in various places around the world.
“Regulators are also set to have a significant impact on deal-making, with those making a more protectionist stance in places as far apart as South Africa, China and Ecuador, effectively forcing companies looking to do business in these markets to build a presence on the ground, either by M&A or starting up new operations,” Holderness aid. “In others, such as India, Singapore, Miami and Dubai, regulators are positively encouraging insurers to set up new offices to exploit national and regional markets.”
The Clyde & Co. report follows a recent KPMG report that found a large number of insurers say they will pursue acquisitions or divestitures through 2017.
Other highlights from the Clyde & Co. report:
The full Clyde & Co. report is called “Insurers search for growth: Navigating challenging and uncertain times.”
Source: Clyde & Co.