Insurance M&A deals expected to decline in the second half of 2020 under the pandemics impact

18 August 2020 — Daniela GHETU
Insurance M&A deals expected to decline in the second half of 2020 under the pandemics impact
Mergers and acquisitions will remain an attractive strategy to deliver growth. In the first 1H2020, completed M&A in the global insurance industry held steady with 201 completed deals worldwide, up from 197 in 1H2019, Clyde & Co's 'Insurance Growth Report 2020' mid-year update shows.

The report's authors see a reduction in the second half of the year as an effect of the pandemic, but expect the re/insurance transactions to make a comeback in 2021.

Here are the key stats of the report:
  • Slowdown in mega deals
    • There were 6 deals in H1 2020 valued at over USD 1.0 billion;
    • There were 20 in the whole of 2019;
  • Mix of big spenders
    • 12 acquiror nationalities among the top 20 largest deals by value;
    • US has six of the top 20 deals, UK, Italy and Canada two each;
  • France leads the way
    • La Banque Postale's takeover of CNP Assurances for USD 6.3 billion was the largest deal of H1 2020;
  • Cross-border activity continues
    • There were 50 completed cross-border deals in H1 2020, 24.9% of the global total;
    • 33 of 50 cross-border deals were intra-region - 66.0%.

As most deals closed in 1H2020 are the result of the agreements reached in 2019, the real effect of the pandemics on insurance M&A will only be clarified in the coming months and will most probably be stark. "There are practical reasons for this, not least that lockdown has made it very challenging to progress deals as it has been impossible to meet face-to-face to negotiate," the report reads also emphasizing that the uncertainty instated by the pandemics is strongly hindering the M&A decisions.

"What might targets look like in the next six months, one year or five years? How will Covid-19 impact the availability of financing? And how confident can buyers be in their own businesses before they turn their sights to M&A? The market is not at a standstill, but strategic and financial buyers are putting heightened focus on deals that make sense to them," concludes the report.

As for many re/insurance businesses the pandemics impact will lead to a reconsideration of the future strategies, Clyde & Co's analysts expect to see "an increased number of targets being offered for a sale and a greater interest in legacy business" in 2021.

Looking at the 1H2020 statistics, Europe shows a stark picture, "with the shadow of Brexit combined with difficulties in reaching valuations pushing transactions to a three-year low."

Overall, "the impact of Covid-19 has accelerated the market hardening that was already underway, presenting opportunities for organic growth that could depress appetite for M&A."

'Insurance Growth Report 2020' - read the full report

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