In the law firm’s report released yesterday, it revealed that dealmakers’ appetites have returned after the hit of the pandemic

Activity in mergers and acquisitions (M&A) activity is set to soar in 2021, according to global law firm Clyde and Co.

With the volume of deals announced in recent months, it predicts that this boom will happen in the first half of 2021. 

The number of completed deals worldwide is likely to surpass 220 in a six-month period for the first time since 2019 – and it could increase further in 2021’s H2.

Ivor Edwards, head of Clyde and Co’s European corporate insurance group, said: “Dealmakers’ appetites have returned, buoyed by growing confidence in the economic outlook and the sense that there are opportunities to be had.

“Despite market hardening, many of the fundamentals driving M&A will persist. These include competition for assets, the need to diversify portfolios, add digital capabilities and increase scale and market share.

“The availability of plentiful capital, combined with a deeper pool of targets, will give buyers plenty of choice, although we expect them to select acquisitions carefully to ensure the best fit with their strategic objectives.”

These insights follow the publication of the law firm’s report, ’Finding Opportunity in Adversity’, which was released yesterday (18 February).

Pandemic induced dip?

There were 407 completed M&A deals worldwide in the insurance sector in 2020 – down from 419 the previous year.

But an anticipated pandemic-induced dip in activity in the second half of the year failed to materialise; instead there were 206 deals in H2 2020 – up from 201 in H1.

Activity in Europe was down by almost a third (34%) year-on-year, to 103 from 155 in 2019.

Edwards added: “Insurance transaction activity worldwide belied expectations in 2020. Dealmakers in the insurance industry, like many others, paused for reflection in the first half of the year, but not for long.

“Strategic players in the market and M&A specialists clearly did not want to be relegated to the side lines and quickly regrouped to identify and pursue opportunities.

”Given that remote working does not easily lend itself to negotiations, due diligence and all the other elements that make up a transaction, the speed with which companies adapted to the new environment was impressive.

Deals in Europe_Clyde and Co_2021 report

Source: Clyde and Co, Finding Opportunity in Adversity report

“With deal announcements continuing apace, we expect the level of completed M&A in the coming months to accelerate as (re)insurance businesses scent opportunities to build scale, generate efficiencies and reach new customers in new markets.”

Mega deals

2020 saw a drop-off in bigger transactions, with 15 mega-deals valued in excess of $1bn completed, compared to 20 in 2019.

After six such deals in H1 2020 – including the year’s largest, La Banque Postale’s takeover of French compatriot CNP Assurances for $6.3bn – this increased to nine in H2.

This suggested that the appetite for bigger deals is returning, said the law firm, although the coming year will see a widening pool of assets of all sizes.

Clyde and Co’s corporate insurance partner Vikram Sidhu said: “The pandemic has forced insurance businesses to review their strategies and get especially focused on which products they want to be underwriting and in which markets.

“A number of firms are actively pursuing opportunities to exit certain non-core businesses through restructurings, divestitures and other deal activity, including to free up capital to redeploy to more preferred areas and products in the hardening market. As a result, legacy transactions will continue to grow and will be a feature of the market in the coming year.”

New players

Eva-Maria Barbosa, a partner at Clyde and Co, continued: ”The improving market conditions have seen insurers move to raise capital, but are also attracting more funds into the industry, including from private equity, which will help finance more deals.

”The involvement of private equity giants Kelso and Warburg Pincus as part of Arch’s deal to acquire Watford Re is just one example.”

The law firm pointed out that increasing premium rates and a more optimistic outlook for the majority of business lines will make stronger market players more likely to look for growth opportunities through acquisitions.

Barbosa added: “In addition, with interest rates at historic lows, buyers may look to tap cheap debt or deploy cash stored away during the pandemic to fund acquisitions.

”Meanwhile, the trend of new players entering the (re)insurance market, often backed by an established figure with a proven track record capable of attracting significant financial backing, is set to continue.”