The Covid-19 pandemic is accelerating M&A conversations, with many brokers considering whether to de-risk their assets
The broker M&A market is “more frenetic now then it’s ever been” as the Covid-19 pandemic has accelerated acquisition conversations due to a financial focus on de-risking assets, said Richard Tuplin, managing director at Ethos Broking.
Speaking exclusively to Insurance Times, Tuplin said “there’s an appetite for [acquisitions]” at the moment, despite the current economic downturn connected to the coronavirus pandemic.
Setting the scene, Tuplin said: “The M&A market has not diminished on last year at all. In fact, it’s probably more frenetic now then it’s ever been.
“A lot more capital has come in from the US, so the sellers really know it’s their market.”
For him, this M&A upturn can be attributed to firms looking to de-risk their assets amid the uncertainty of the Covid-19 landscape – he described this as a “perfect storm where the pandemic is undoubtedly a driver”.
He explained: “I think people can crystallise their assets. There is no real quick road map out of this. Do I need this added pressure? What is my asset worth?
“The question is: will the economy bounce back and when, or am I better off doing something now while I can get X? So, de-risking their assets and giving themselves certainty, I think, plays a part.”
Tuplin added that he has also seen brokers “just dipping their toe in” to the M&A pool, to explore potential options.
“They’re actually saying ‘well what would my business be worth’? We’re getting tentative enquiries, which is ‘I don’t know if I am [selling] or not, but would you like to be in any early discussions?” he explained.
Although the pandemic isn’t the sole driver of this “frenetic” M&A activity, Tuplin believes it has certainly pressed fast-forward on potential deals.
He said: “I think ultimately, it’s can [brokers] find that right partner or business to acquire them – the timing, their culture, their values – but I think if they’re all ticked, then yes they would.
”And a lot of them probably wouldn’t necessarily have been now – it might have been two or three years, but I think [the pandemic has] accelerated those discussions without a shadow of a doubt.”
Sellers’ market
Describing the M&A trends that are set to continue into 2021, Tuplin added that “it’s a sellers’ market” and that “sellers are now far more educated as to who they want to sell to and the variety of options they have”.
In terms of these options, Tuplin breaks this down into two main camps – those who purchase purely based on price and those who centre their M&A activity around finding a cultural fit with like-minded businesses.
“While there’s capital flowing in, there’ll be many tiered types of acquisitions, so people will sell on price and absolutely [that is] their prerogative, and they will be accepting of going into more consolidator models,” he explained.
“[There are] those that will sell for price, those that will be about culture and legacy, and those that want a bit in between.
“I do think though the clarity of proposition will be absolutely number one, but people will want to know what does this mean for me, my business and my people? So, questions will be asked in due diligence.”
From Ethos Broking’s perspective, Tuplin said it’s all about culture. Focusing on organisational culture within the M&A process helps to build up brokers’ resilience, he added.
Tuplin continued: “For us to acquire a business, it’s got to be culturally right for us.
“We want to be integrating it quickly, culturally and we want them to feel part of the family, quickly.
“We know what we want and not every target will align to that and we’ve walked away from a lot but ultimately, there’ll be daft prices out there, there always has been and we’ll do what we do and we’ll maintain our discipline. But I do believe our culture and our model will see us do well.
“We’ve got acquisitions in the pipeline, which is great and we’ll be seeing them coming in.”
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