The recent IBTV roundtable brought to the market by Global Risk Partners (GRP) and hosted by Insurance Business UK, assembled some of the top names working in the insurance market today to address a question of escalating importance - when is the right time to sell your insurance business?
Offering a solid foundation for the question, Mark Flenner, partner and head of financial services M&A at KPMG, highlighted how the market has changed over the last year in terms of the level and type of dealmaking activity which is taking place. Understanding what’s happening at a macro-level in terms of deal flow is critical, he said, as this is having a knock-on effect on deal volumes.
“For example,” he said, “a lot of activity in the UK is driven by private equity. So, if we just look at the amount of deal flow that’s happened with the PE world, deal volume is down by 30% and deal value is down by almost a third. The mid-market has been slightly protected… but definitely, the larger deals have quietened down.
“If I look at the mid-market, the volumes there are down 16% to 19%, [showing] a little bit of an impact, but quite insulated probably from the bigger deals… The flip side of that is we’ve seen a reduction in the number of deals where private equity is exiting as well. That’s over 35% down. So clearly, the environment’s had a huge impact on private equity deals.”
Looking at the broader financial services space, Flenner noted that while it has not been immune to these conditions – registering a 14% dip in deal volumes – it has fared better than the insurance market where deal volume is down 40% from last year. He also emphasised the contractions being seen in the debt market which have had a significant impact on private equity dealmaking.
The cost of that debt has gone up as insurance rates around the world have tracked upwards, he said, but it’s worth noting that the quantum of the available debt has come down which has put a lot of pressure on the appetite in the private equity world to go out and do deals.
“So, a bit of nervousness, a little bit of caution, not quite sure what the macro environment holds,” he said. “And if you add all those factors together, you can see that those numbers don’t feel like they’re changing perhaps in the next few months… [There’s] a lot of talk externally that H2 this year, that’s when everyone will be back on the tools, as they say, and everything will be fine, as inflation peaks and interest rates start to track down. There could be a lot of deal volume towards the back end of the year.”
Find out more about dealmaking today from Brown & Brown, GRP, AXA Commerical, Premium Credit Ltd and Christopher Trigg Insurance Brokers in part one of this roundtable interview.
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