How has the credit crunch affected mergers and acquisitions in the insurance market? Not too badly, finds Jim Keeling of Corbett Keeling in his quarterly round-up of deals
Last October was a historic month for company takeover and fundraising activity – and not in a good way. In October 2008, for the first time in 10 years, a calendar month passed without a single new money-raising on the normally hyperactive Alternative Investment Market.
More recently, Dealogic has reported that a record number of deals were cancelled last year. The total number across all sectors was down 30% on 2007. One of the reasons is that the private equity buy-out funds retreated – at least for a time. They were reported as investing less in the fourth quarter of 2008 than in any quarter since 1995.
But is it all bad news? And how long will it last? Let’s look at the facts for the insurance sector. The four charts, produced by Corpfin, show completed acquisitions where the buyer or seller carries on insurance-related activities in the UK and the price was publicly disclosed at either more or less than £40m.
In the third quarter we reported a highly unusual dearth of deals worth more than £40m, but there was a much stronger showing in the final three months of the year. The big deals include Aon’s takeover of Benfield and Swiss Re’s of Barclays Life. Five deals were completed in the £40m-plus category, with a total value of just over £2bn.
While this is a reasonable performance compared to previous final quarters, it still leaves 2008 as the second worst year on record – beating only 2002 for aggregate deal values and 2003 for volumes.
Smaller deals have been more consistent and the fourth quarter is not far off the average for recent years in terms of volume and value. Remembering that the four charts only show UK insurance deals for which the price was publicly disclosed (see box, far right, for a chart showing all deals), there were only seven such deals at less than £40m. They had a total value of £65m. Giles and Oval have been particularly active. Both are well funded and reported to be looking for further acquisitions.
Given the level of activity, it is not surprising that one sees headlines along the lines of “Private equity groups eye up motor insurance” and “Europe’s chiefs see M&A surge on the horizon”. Perhaps the key here is the headlines that are the other side of the coin – those that, for example, tell us of distressed debt funds being raised to finance the deals.
So new funds are being raised but, even without new money, there are plenty of funds and companies with cash to spend – they have to put it somewhere and will be looking for businesses in which to invest. Roll on activity in the insurance sector.
All deals by volume
We have produced a fifth chart for the fourth quarter showing volumes of all UK-based insurance deals, including those for which the price was not publicly disclosed. Naturally this shows far more activity. This chart also presents a picture of a quarter that, while well below 2007 levels, is not far off the average for the previous 20 years. So, although the headlines may forecast doom, company takeovers and fundraisings in insurance were not down by much at the end of last year.
Jim Keeling is joint chairman of Corbett Keeling, which advises on funding buyouts and selling insurance businesses