Opinion: Is Europe still the next phase of UK broking M&A?

Following the fast and furious flurry of broker M&A activity during the Covid-19 pandemic - in 2020 and 2021 - last year was certainly a change of pace.

Financial advisory firm Imas deemed 2021 “a record year for M&A by value”, containing “more deals by number than in any other year”.

Its February 2022 report cited that 145 UK distribution M&A transactions were announced in 2021, equating to a value of around £6bn.

In comparison, 2022 marked a distinct dip in broking M&A. Imas told Insurance Times in October 2022 that in the first three quarters of that year, broking M&A deals between £5m and £25m amounted to just 23.

Industry chatter guesstimated that the raft of M&A in the broker sector over the pandemic meant that there were subsequently less targets in the UK for consolidators to pull into their pipelines – especially as the regulatory landscape around insurance broking could act as a blocker for startups, meaning the sector was not being refreshed with new blood.

As a result, some brokers have started to look further afield – into Ireland and Europe, for example – for acquisitional growth opportunities.

One such firm is PIB Group. In April 2022, PIB Group’s chief executive, Brendan McManus, told Insurance Times: “It’s not reasonable to think that we can continue to consolidate businesses in the UK and give our investors the huge growth that we’re already doing because we’re just running out of opportunities in the UK.”

Other brokers, however, feel there are still M&A opportunities aplenty in the UK.

Phil Bayles, chief commercial officer at Ardonagh Advisory, told me: “Insurance broking is very entrepreneurial. There [are] a lot of people who will create their own businesses.

“There [are] always new ones coming in, the same way that there are ones that are being swallowed up.”

Equally, Mike Edgeley, group chief executive of The Clear Group, also feels there is no lack of M&A targets in the UK, with new brokers still entering the market – despite the fact that his firm is considering extending its M&A strategy to Ireland and Europe in the future.

However, he warned: “The market of old – going back 15, 20 years – used to refresh itself. You’d see more people setting up new businesses. In the current climate, with issues of debt markets, insurers, reinsurance and what’s happening through the supply chain of being able to get capacity, you probably see less people doing that right now.

“There is a whole debate among our industry of making sure that we are looking at that next phase of entrepreneur and enabling those new entrants into the market. That will probably happen simply because whenever you have phases of consolidation, at some point, you will find people spilling out of those larger businesses with a small team of people and setting up again.

“Right now, it’s probably quite hard to do that, but that will restart. There is appetite out there for people to do that.”

Broking M&A has been incredibly interesting in recent years – let’s see what deals 2023 brings to the fore.