Strong dollar provides no shortage of US M&A interest in UK insurance firms

Acquisitive brokers operating in the UK insurance market believe there is no shortage of US-based interest in acquiring UK firms.

Part of this increased interest has been driven by currency, as the dollar strengthened in comparison to the pound over the last few months.

When the government announced its mini budget in September 2022, the pound’s value fell significantly against the dollar – at its lowest, sterling fell close to $1.03 as markets reacted to tax cut proposals.

While the pound regained some strength after the plans were reversed, the dollar still remains relatively strong with international bank J.P.Morgan forecasting modest dollar strength throughout the year in February 2023.

Today (13.04.2023), the pound sat at a level equal to $1.25, where it has hovered for the past month or so. 

In a report published in November 2022 by Deloitte – entitled 2023 insurance M&A outlook – the firm highlighted that across sectors, “the availability of capital among overseas carriers and investors – and relative strength of the dollar for US companies in particular – will attract buyers eager to take advantage of UK currency weakness”.

Noting this, Insurance Times asked three insurance brokers whether a strengthening dollar would see more US firms snap up insurance companies in the UK.

One of them was Aston Lark, which became part of  international broking group Howden in April 2022.

Later that year in October, Aston Lark reported 75% growth in its yearly revenue to reach £160.1m.

Group chief executive Peter Blanc said US acquisitions in the UK “have always been there”, with there being “no shortage of US interest”.

He added: “The US is an incredibly large and diverse market and when they’re looking to expand overseas, the UK is an incredibly logical place for them to look, particularly with the weakness of sterling or strength of the dollar, depending on which way you look at it.

“It’s a good time for the US to be buying in the UK.”

Nick Houghton, chief executive of JMG Group, also felt the UK was ripe with acquisition targets for US firms.

The company acquired Knightsure Insurance Brokers and T I Alexander Insurance Brokers in two sperate transactions in January 2023, while it also snapped up HGV and motor trade insurance broker New Era in March.

“First of all, we’ve seen a fair bit of [US businesses investing in the UK] over the last three to five years, with US businesses seeing the UK as a good acquisition target,” Houghton said.

“That will continue because there’s still a reasonable number of US strategic platforms or trade buyers who don’t have a presence in the UK.”

Exchange rate

Meanwhile, Stephen Ross, head of M&A at Global Risk Partners (GRP), felt the exchange rate “won’t make much difference in the long-term”, adding that the UK has a “strong and dynamic” insurance industry.

In July 2022, the company was acquired by US broker Brown & Brown as it looked to establish itself as a major force in the UK retail insurance market.

Ross said that with Brown and Brown’s backing, GRP can continue to grow “at a very strong pace”.

“That’s why [the US broker] invested in us, so I don’t see the exchange rate difference making a difference in the long-term,” he added.

“When people are investing in the UK, they’re looking at the longer term prospects of the marketplace rather than sort of seeing it as an opportunistic currency play.”

He continued: “There are other US-consolidated businesses within the UK already who are making acquisitions of their own.

“So, a number are already here and there may well be others that wish to come into the marketplace.”

What makes the UK attractive?

Houghton went onto explain why international investors see the UK as a good market to invest in.

He said the UK is seen as a “good established place to come in and grow an insurance broking business”.

“It’s a mature market – one of the biggest insurance markets in the world – and it has a track record of successful consolidation and a reasonable sized economy,” he added.

Blanc, meanwhile, explained: “It’s a very secure market and very robust. It’s also highly regulated, [with there being] pretty high barriers to entry.

“Since [the pandemic], it’s been one of the most robust, resilient sectors out there and with all the uncertainty in the world, lots of investors like robust and resilient.”