Insurance M&A: UK continues to lead the way, but supply is falling

A new report has found that the UK continues to lead the way in a busy European market for insurance M&A. However, there is growing evidence that the supply of acquisition targets in the UK is declining.

In its report for the first quarter of 2024, MarshBerry found that the strong consolidation seen in the European insurance market during 2023 continued in the first three months of this year, signalling that 2024 will be another strong year for dealmaking.

This activity continues to be led by the brokerage market, which MarshBerry said “is going from fragmented to consolidated at an incredible speed” across Europe. The report stated that the potential for consolidation throughout Europe is strong and that deal activity is being driven by interest from “both national consolidators and international platforms buying into new markets.”

MarshBerry said it had identified 110 announced M&A deals in the European insurance brokerage market from the start of the year to March 31 2024 and added that this is likely to be an underestimation, due to the fact that many smaller acquisitions tend to go unpublished.

The report stated that brokerages are “highly sought after by private capital investors”, describing them as generally being “capital-light businesses that have high profit margins, strong client retention rates, and a proven history of generating consistent returns despite market volatility.”

The inherent attractiveness of brokerages, as well as the large number of targets across Europe, has driven a significant amount of private equity activity in the sector, with MarshBerry reporting that around two-thirds of European transactions announced during Q1 2024 were backed by private equity firms.

MarshBerry also cited economic optimism in the Eurozone as an important driver, with M&A activity across all sectors in Europe seeing an upswing following several years of slow activity.

The report stated: “Decelerating inflation, an expected decrease in interest rates, and continued strong financial markets underline optimism that 2024 will be a strong deal-making year for the insurance distribution industry.”

“In Q1 2024, inflation rates in the 20-nation eurozone continued to decline, easing to a 2.4% annual rate in March, a four-month low. In April 2024 the European Central Bank (ECB) maintained interest rates at their current level of 4% for the fifth consecutive meeting. However, the ECB provides strong indications of a potential rate cut in the near future.”

While strong activity is being seen across Europe, MarshBerry found that the UK, which has seen huge amounts of brokerage consolidation over recent years, continued to be the leading country in terms of deal volume.

UK-based Howden was one of the most active private capital-backed broker groups across Europe during the first quarter of the year, with the company expanding its European footprint with acquisitions in France, Belgium, Norway, Estonia and Ireland, as well as the UK.

However, reflecting concerns that have been voiced about the resilience of UK brokerage M&A in recent years, MarshBerry reported that the size of UK deals was getting smaller, in spite of volumes remaining high. According to the report, following years of strong consolidation among mid-market firms, reduced supply means it is unlikely that UK deal prices will go any higher and that they may begin to decline as consolidators focus more on smaller takeovers.

In their 2023 report on UK brokerage M&A, MarshBerry reported a record 148 transactions in the insurance distribution market, up 35 per cent from 2022, citing continuing competition for targets, multiple consolidators and an increasing number of overseas (mainly US) buyers entering the market.

However, the report also noted that the increase was “perhaps” counterintuitive, due to the reduced supply of targets. MarshBerry stated that deals were getting smaller and that consolidators were increasingly required to “reach down” and focus their efforts on smaller acquisitions.

The report also stated that private equity exits were increasing, as buyout firms were “now more focused on continental opportunities than the more mature UK market.” MarshBerry added that the stock of potential acquisition targets was not being refilled, particularly in the brokerage market, and forecast that UK deal volumes during 2024 would largely be driven smaller acquisitions.

The Q1 2024 report shows that this prediction seems to have been accurate. While MarshBerry notes that “in most continental European markets consolidation continues at a strong pace”, the UK’s M&A market appears to have peaked.

As a result, while widespread dealmaking should continue for some time to come, it is possible that activity will increasingly shift away from the UK. Clearly, there is still significant scope for dealmaking in the UK insurance market, but buyers may need to act quickly to ensure they can snap up the best targets, amid intense competition and a shrinking pool of potential acquisitions.


Read our in-depth analysis of the major trends in UK insurance M&A

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