COVID-19 Uncertainties Likely to Reverse H1 Global Insurance M&A Surge

Insurer mergers and acquisitions climbed higher in the first half of 2020 with a robust 201 completed deals worldwide, up from 197 in the second half of 2019, according to Clyde & Co’s “Insurance Growth Report” mid-year update.

This was only the second six-month period in the last five years where the volume of transactions exceeded 200, the report found.

The ongoing COVID-19 pandemic could bring that momentum to a screeching halt, according to Ivor Edwards partner and European head of Clyde & Co.’s Corporate Insurance Group. He noted in prepared remarks that the deals from the 2020 first half would have been negotiated and agreed to back in 2019, before the pandemic hit.

“The impact of COVID-19 on insurance M&A will only become clear in the coming months, and we expect it to be stark in the short-term,” Edwards said. “For many, responding to the pandemic has meant putting growth ambitions to one side, in order to take stake stock of the impact on operations, claims and investment returns. The last few months have been plagued by a level of uncertainty – the enemy of deal-making – rarely seen before.”

At the same time, as the economy stabilizes under current conditions, Edwards said that insurance/reinsurance M&A transactions should rebound by 2021.

Heightened Strategic Focus

H1 2020 saw a slowdown in mega deals, with just six valued at over $1 billion, compared to 20 in the whole of 2019, evidence of a more measured approach to deal-making that Clyde & Co. said it expects to continue.

Vikram Sidhu, a Clyde &Co. partner based in New York, said that at that point, the trend of strategic and financial buyers placing more focus on deals that work for them will accelerate as the COVID-19 fallout continues. He added that the pandemic will eventually push “a range of distressed businesses” along with insurers and reinsurers pull out of “certain lines, industries or geographies.”

Tech-Led Recovery

Technology continues to be a primary growth driver worldwide. Deals completed in H1 2020 included investments into U.S.-based start-up Openly, Belgium’s Keypoint and yallacompare in the United Arab Emirates.

Joyce Chan, Clyde & Co. partner in Hong Kong said the trend appears to be more selective but steady InsurTech investment in the months ahead.

“While InsurTech investment dived in Q1 due to COVID-19, it rebounded in the second quarter. Although investors have already become more selective since last year, a trend that the pandemic will strengthen, high-quality tech offerings are still attractive, provided they can prove their worth,” Chan said in prepared remarks. “Start-ups now reaching maturity with a proven track record are ripe for acquisition and we expect this to be a key deal driver in H1 2021.”

Other report findings include:

• Capital-raising has been a feature of the post-pandemic market – reaching $16 billion in H1 2020 according to Willis Towers Watson – presenting opportunities for organic growth that could depress appetite for M&A.
• Activity in the Americas was flat in H1 2020, with 90 deals compared to 89 in the preceding six months, although deals in the U.S. dropped from 73 to 64, marking the third consecutive period of decline.
• Asia Pacific made steady gains, with an uptick in M&A from 31 to 38 deals in the first six months of the year, with Japanese acquirers once again leading the way, ahead of Taiwan and South Korea.
• The shadow of Brexit combined with difficulties in reaching agreement on valuations pushed M&A in Europe to a three-year low with 53 deals completed, down from 67 in H2 2019.

Source: Clyde & Co.

*A version of this story ran previously in our sister publication Insurance Journal.