Marshberry has released its June 2024 UK insurance M&A market update, revealing the state of the industry as it enters the second half of the year.
July ushered in a new government for the UK under the Labour party, which secured a strong mandate for fiscal reform. However, the Labour leadership has been engaging with businesses and is likely to proceed cautiously with significant or immediate changes that might affect mergers and acquisitions (M&A).
Rather than speculating on potential impacts of tax or policy adjustments on future dealmaking in the insurance distribution sector, Marshberry explained that it is timely to review the first half of 2024 and examine developments over the past six months.
As per the report, in June, 14 new deals were announced in the sector. This included two significant deals involving overseas buyers, one private equity (PE) secondary deal, and several smaller consolidation deals by familiar players.
As of mid-2024, there have been 71 announced M&A transactions in the UK insurance distribution sector, involving 37 unique buyers. This is slightly down from the 75 transactions announced in the same period in 2023, indicating a consistent rate of deal flow over the past 18 months.
Although the overall transaction volume appears steady, several notable trends have emerged. The firm noted that the proportion of deals involving PE and PE-backed buyers is at a multi-year low, standing at 39% year-to-date in June, down from about 70% in 2020 and 2021. Nonetheless, there have been four direct PE transactions in 2024, double the number for the whole of 2023.
Additionally, 2024 has seen an unusually high number of deals involving personal lines businesses. Nearly a quarter of all deals so far this year have involved a personal lines target, compared to a long-term average of less than 15%.
Seventeen (17) personal lines deals have been announced in 2024, equalling the total for all of 2023. Most of these deals have been in non-motor business and several involved PE buyers, with few commercial business buyers participating. This trend warrants close monitoring, it suggested.
Conversely, the number of commercial lines deals has declined. The average size of these deals continues to fall, reflecting a long-term trend of a reduced supply of mid-sized broking targets available for consolidation.
Marshberry noted that over 70% of all announced M&A transactions in 2024 involved targets valued below £5 million, with no deals involving targets valued between £25 million and £100 million, against a long-term average of eight per year.
An analysis of headcounts of M&A targets corroborates this trend. The average headcount of targets acquired in 2024 year-to-date is 23, compared to an average of 54 for all announced deals since 2016.
Consolidators are thus pursuing a greater number of smaller deals due to the diminished availability of mid-sized targets. Using headcount as a proxy for brokerage income suggests that overall consolidation activity in commercial lines has been declining since its peak in 2021.
Notable M&A deals in 2024 so far
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