Carrier M&A activity in the first half of the year falls to lowest level in 15 years

The first half of 2024 set a 15-year low for first-half insurance M&A, according to Clyde & Co’s latest mid-year growth report.

The number of insurance carrier M&A deals completed in the first six months of this year fell to 103 – a 40% drop from the 171 completed in the first half of 2023.

In the report, Clyde & Co said the number in the first half of 2024 was “significantly lower” than the previous low of 162 in the first half of 2023.

“The combination of high interest rates, stubborn inflation, high borrowing costs and geopolitical uncertainty has seen 2024 continue very much in line with 2023,” the report said. “From a global perspective, caution abounds. Potential buyers are more selective, keen to avoid buyer’s remorse by ensuring cultural and strategic fit, while sellers hold out for better prices under more favorable circumstances.”

According to a press release, transaction volume declined throughout 2023 in response to rising inflation and interest rate cuts. In the first half of 2024, “cash-rich carriers that would have traditionally been active in the market have held back capital while interest rates are high,” it said.

Clyde & Co reported that high price expectations and rising premiums required to integrate technology systems as innovation widens the gap with legacy platforms are contributing to the slowdown, and deal dynamics are also changing with a greater focus on securing talents.

While the US and Canada saw the most insurance deals of any region in the first half of 2024, with a total of 40 deals closed, by their own standards, North American M&A activity “remains reduced”, the report states.

According to the report, the November elections will be a “turnkey moment” and after they pass, “deal flow can resume.” Clyde & Co also noted that a more stable economic picture, with easing interest rate and inflationary pressures, could provide further incentive for deals.

“Insurance M&A for the remainder of 2024 and into 2025 will likely be driven by larger-scale transactions,” said Eva-Maria Barbosa, partner at Clyde & Co. “While the total number may not increase dramatically, it is increasingly likely that to see offers covering a number of jurisdictions, some of the major carriers now looking to accept books or businesses covering 8-10 countries in one fell swoop.”

Peter Hodgins, also a partner at Clyde & Co, added that the US election “will bring us close to the end of a period of exceptional political change”. He said interest rates are generally falling and while buyers are “likely to become more bullish, sellers may be left with no way out” and companies that have relied on financing will look to divest non-core businesses or underperforming operations.

TOPICS
Mergers and acquisitions