Analysis shows £2bn underperformance in UK insurance M&A

More than £2bn of insurance M&A deals in the UK last year could fall short of expectations, according to an analysis by Equator.

The digital transformation consultancy’s figures, published yesterday (11 November 2024), showed 130 transactions worth £3.3bn took place over the course of the year.

However, the firm found that 65% of deals generally can fall short of expectations. Should that be the case, it said that £2.1bn of deals completed in 2023 are underperforming as a result.

Lesley Fordyce, change director at Equator, said there was an acknowledgement that M&A “rarely delivered the promised value, but answers were equally well known”.

She added: ”The people aspect of M&A deals is like going to the gym, everyone knows they should be doing it, but there are easier ways to spend your time.

“This is a thorny issue that’s been around forever, but we don’t seem to learn the lessons. There are the tangible aspects of a deal – making the numbers work, bringing together systems and processes – which give you a comforting calculation of intended value.

“The bit, which makes all of this other stuff actually work, of course, is people. That’s a trickier and less quantifiable thing to tackle, so it tends to be forgotten completely or left until later, by which time it’s too late.”

Upwards shift

The data also suggested an upwards shift in deal volume this year, with 94 transactions worth £900m logged in the first half of 2024.

”With four direct PE investments into the insurance sector so far in 2024 – twice as many as the whole of 2023 – there are opportunities to focus on delivering additional value,” Equator said.

Mark Bell, who is a fellow change director at Equator, explained that if ”you’re putting the money and time into a deal, there’s a disproportionate advantage to spending a little more effort on engaging people right at the start of the process”.

He added: ”Bringing new systems and processes into a business often feels like a headache for staff across the business, rather than anything that’s going to help them personally.

“All of these little things slow down integration, eat into productivity and ultimately stifle the value that you can expect from a deal. M&A is a great way to bring new scale and reach to a broker or an insurer, but in what other area of business would you be satisfied with something that was two-thirds of what it could be?”