UK&I forecast to see lower insurance M&A deal volumes in 2023

Insurance merger and acquisition (M&A) deal volumes across the UK and Ireland could reduce in 2023 due to economic headwinds, according to BMS.

The specialist insurance and reinsurance broker analysed M&A trends from 2022 and provided an outlook for 2023 in its latest Private Equity, M&A and Tax report.

Published earlier this week (17 April 2023), it said volatile stock markets, debt financing restraints, rising interest rates, inflation concerns and geopolitical uncertainty restrained the UK and Ireland M&A market in the last quarter of 2022.

“The outlook is that this will result in lower deal volumes and valuations into 2023,” it added.

”M&A cooled in 2022 after a record-breaking period and it is expected that activity will normalise at a lower baseline in 2023.”

This came as figures published by FTI Consulting in March 2023 revealed that while the UK and Ireland were the most active counties in Europe for M&A in 2022, a total of 177 deals were completed in the year, a decline from 197 in 2021.

BMS said the worsening backdrop for M&A was reflected in the third quarter figures more than in any previous quarter in 2022.

“The slowdown in PE dealmaking was more pronounced than that of the overall market, with deals plunging 65% in value and 33% in numbers in the third quarter versus the same period of 2021,” it said.

’Exceptional value’

However, BMS predicted that the second half of 2023 could be “strong” for M&A activity across the UK and Ireland.

It said the British Isles remained Europe‘s lead market in the final quarter of 2022, accounting for 25.2% of total deal value and 20.2% of total deal volume.

And it said that with “the sterling continuing to trade below long-term averages”, a range of ”cash rich, sophisticated, overseas buyers continue to see the UK as an attractive option”.

Recently Insurance Times spoke to three acquisitive brokers, which all noted that there was no shortage of US-based interest in acquiring UK firms.

The report added: “UK companies now look exceptional value to overseas investors considering acquiring new technologies, rebalancing asset portfolios, gaining new skills and people, acquiring, or divesting through the lens of environmental, social and governance (ESG), including meeting their energy transition commitments.”

Global picture

The report also analysed M&A markets across the rest of Europe, North America and Asia.

It found deal size in 2022 was affected by the deceleration in M&A activity coupled with a rise in interest rates, with insurers noticing a reduction in average enterprise value as investors were less able to commit to high deal multiples.

BMS also said a notable uptick in claims from policies underwritten during the pre-2022 M&A boom resulted in reinsurers looking to manage risk to a “much greater degree, accounting for lower primary policy limits and an increase in excess policies as a proportion of an insurer’s book”.

However, it said there was a “growing appetite” in the M&A insurance market, with BMS seeing circa 40% growth in insurance products purchased over the past 24 months.

Tan Pawar, head of private equity and M&A at BMS, said: “2023 has gotten off to a subdued start compared to the deal activity levels seen over the past two years.

“However, momentum is growing and we have not seen a decrease in enquiries from companies eager to obtain M&A insurance.

“With market conditions expected to stabilise, we should see a resurgence in deal activity by the end of Q2 and into the second half of 2023.”