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“At the halfway point in 2024, there are 24 announced mergers and acquisition (M&A) transactions in the UK investment sector showing a sharp drop in activity from the previous three years,” said US consultancy MarshBerry in its 2024 UK H1 Investment Report, which detailed the M&A activity in the UK insurance sector.
According to the report, there were 24 transactions in the H1 period, which was a more than 50% drop compared to H2 2023.
However, the total value of those transactions were estimated at £6.6 billion, which was 101% increase.
The 24 deals showed “a sharp drop in activity from the previous three years,” said the report. “The deal count in Q1 this year was substantially below the level reached in Q4 2023 and, similarly, Q2 of this year was less than half of Q1, so the trend is seemingly pointing downwards.
The report said this was “not surprising” in light of record high levels of transactions over the last three years, “especially against the backdrop of increasing cost of capital and the pressures of Consumer Duty that have impacted acquirers’ abilities to pursue M&A in the last year”.
The total value of Private Equity (PE) transactions were £3.3 billion, which was up 55% and eight of these were transactions backed by US PE firms.
“It shows the market cooling down from highly elevated levels in terms of volumes but with valuation multiples remaining relatively resilient."
In February this, year, law firm Clyde and Co, said that recorded M&A activity in the insurance sector was at a ten-year low in 2023, according to its “Insurance Growth Report 2024”. However, Europe managed to gain steam towards the end of the year.
This trend has seen some reversals - EY said in July that the number of UK insurance deals rose from 48 in H1 2022 to 54 in H1 2023, however, the total publicly disclosed deal value fell from £3.8bn to £16m year-on-year.
“It shows the market cooling down from highly elevated levels in terms of volumes but with valuation multiples remaining relatively resilient,” said Fred Hansson, Managing Director, MarshBerry.” It also showed continuing confidence among PE investors who provided support for the consolidation of the sector, albeit on a more selective basis and in more strategic opportunities.”
Clyde and Co’s report said that inflation and the movements by central banks on interest rates to combat rising prices were one of the main reasons for the slowing activity.
It also listed the world’s complex regulatory system – particularly around ESG and climate reporting – as being part of the reason for the slowdown. This was namely down to insurers' nerves around potential compliance pitfalls.
With a change to interest rates recently announced in the UK and the Eurozone there could be further M&A activity upswing in the second half of the year.
MarshBerry said there were many other positive details in the sector too that emerged in the report with the aggregate deal values it covered more than doubling in the period versus H2 202. This, it said, was boosted by the takeover of retail investment firm Hargreaves Lansdown. "A bid for a FTSE 100 constituent like that does not come along every six months so disguises the otherwise lower average size of transactions,” said the report.
The report also specified a changing appetite in the kind of buyers undertaking acquisitions.
“In recent years, deal activity has been boosted by PE backed “buy–and–build” vehicles,” it said. “However, their consolidation of the market has slowed down quite significantly this year. PE still remains the single largest category of buyer, both in direct investments and as a backer of a company acquiring other businesses and their presence is seen across several models and subsectors of the market.”
“Almost one in every third acquisition in [H1] was sponsored by North American PE funds, not the mid–market UK funds, which have been so dominant."
This builds on 2023’s trend – which saw an increase of around 39% in PE activity, said FTI Consulting in its M&A activity wrap up for 2023 in insurance — directly and through portfolio companies — with 366 announced transactions compared with 263 in 2022. Strategic (non-PE-backed) buyers also pursued opportunities, with 208 transactions being announced compared with 172 in 2022.
“Almost one in every third acquisition in the first half of this year was sponsored by North American PE funds, not the traditional mid–market UK funds, which have previously been so dominant,” said MarshBerry. “The scale and ambitions of these larger funds have supported more strategic acquisitions by more selective acquirers than the usual suspects among the consolidators."
MarshBerry’s review focused on transactions in the UK investment sector with an estimated size of £5 million and above. The UK Investment sector includes companies involved in the ecosystem for savings and pensions such as retail and institutional advisory firms, integrated wealth managers, investment managers, platforms, stockbrokers, pension providers, and administrators, it specified.
The database was built on information from the FCA and Companies House, said MarshBerry.
