However buyers could still be cautious considering the uncertainty of the economic landscape
RSM predicts that competition will be high for any established, growing and well-run brokers, as well as MGAs that have good access to underwriting capacity.
This is because the appetite from larger consolidators remains unchanged, with acquirers focusing on converting their deal pipelines.
In a statement, RSM said: “Insurance has long been an active sector for the private equity (PE) community.
“With record amounts of uninvested capital, interest in the sector is expected to increase as PE funds look for both platform opportunities and bolt-on acquisitions to target returns.
“Whilst some verticals are struggling with the impact of Covid-19, those brokers and MGAs performing well and in hardening markets will be even more sought after.”
Although the firm pointed out that despite increased competition, buyers might be cautious considering the uncertainty in the current economic climate.
It stressed that creative deal structures may be needed to bridge the expectation gap with vendors.
Started how it ended
In the first half of 2020, there has been high levels of deal activity as well as strong competition to acquire mid-market brokers and MGAs.
RSM said that because of this “2020 started how 2019 ended”.
This demand has been driven by several factors as financial and strategic buyers looking to acquire businesses with sturdy cash flows, recurring revenues, capacity access and the ability to scale technology.
For example, the first three months to March 2020 saw 25 deals complete in the UK lower mid-market.
This is similar to the 28 deals completed in the same period during the previous year.
But in the three months to June 2020, deal volumes dropped to just 10 – which was significantly lower than the 26 completed deals in Q2 2019.
Deal drivers
● Technology enabled firm.
● Niche or speciality focus.
● Robust trading or a resilient end market.
● High persistency and renewal rates.
● Low reliance on one underwriter or distributor.
● Strong underwriting performance.
● Established management team.
Like most sectors, the Covid-19 pandemic and the UK’s lockdown has impacted businesses’ ability to maintain continuity, as well as affected the acquirers’ ability to assess and close deals.
While some verticals have been hit hard, the industry’s resilience overall has been shown.
And as the insurance market has adjusted to a more uncertain world, it is important that financial and strategic buyers remain interested and active.
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