Drivers for insurance M&A include existing players seeking to access new markets, distribution channels and product lines and to broaden expertise. Technology has been an increasingly important driver in recent years, with purchasers looking for the potential efficiencies and competitive edge provided by “insurtech”, including digital distribution platforms, data analytics and process automation. Non-trade purchasers such as PE houses have seen opportunities in the sector, for example in insurance broking businesses, which have the potential to offer recurring and relatively countercyclical revenues.
The ongoing pandemic has the potential to drive further M&A activity in the sector. Insurers are looking to analyse their operations and may shed non-core areas of business to boost efficiency, reduce costs and raise capital. In addition, many insurance lines have experienced what is known as a “hard market”, with reductions in available cover for certain types of insurance (or providers withdrawing from markets altogether), whilst providers that remain have reduced cover for certain industry sectors and/or significantly increased premiums (this has been the case, for example, in certain property-related insurance as well as liability covers such as directors and officers insurance). The value represented by increased insurance premiums may make for an attractive investment to those looking to expand their footprint in the relevant insurance classes or to new entrants in the market specialising in specific insurance lines.
In this note we discuss the following topics:
- Insurance sector targets and deal structures
- Diligence considerations
- Regulatory considerations
- SPA considerations
- Debt financing considerations