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Paul: Hello, everyone, and welcome to a special edition of Insurance Business TV brought to you in association with global risk partners. You're used to seeing us talk to our guests through the wonders of virtual platforms. But isn't it better when we're all here together? Well, now we're bringing you our first in-person roundtable since the COVID 19 pandemic and one with a topic that was relevant before the pandemic or through it and has certainly not disappeared since. Every day on the pages of insurance business, you'll be used to reading about acquisitions, whether it's the giants of the business, like the nearly was Aon WTW merger a couple of years ago, or what seems like the weekly acquisitions from major insurance intermediaries here in the UK of local brokerages. Here's a little insight for you. The M&A section of insurance business is our most visited channel. And why? Because brokers want to know what's behind these deals. And if I'm considering a sale, when is the right time? And what are the pros and pitfalls of this process? Well, to discuss these issues, our friends at Global Risk Partners have helped us put together a first class roundtable who I now have the honor to introduce to you. They are Dominic Trigg, Managing Director of Christopher Trigg Insurance Brokers. Tara Waite, Chief Executive Officer at Premium Credit Limited. Powell Brown. Brown and Brown President and Chief Executive Officer. Jon Walker Chief Executive Officer of AXA Commercial. Mike Bruce Global Risk Partners Group Chief Executive Officer and Mark Flenner Partner and Head of Financial Services M&A at KPMG. So let's get the ball rolling with a little bit of an overview of the market. So to get us started then I want to look at how the M&A market has changed over the last year in terms of the level and type of activity and the funding behind those deals. To answer this first question, I'm going to go to Mark first.

Mark: Thank you very much. Right. Just a little bit of background on what's happening in the market in terms of deal flow. So obviously, there's been a lot happening at the macro level and that's definitely had a knock on effect on deal volumes. So for example, 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%. Deal values almost by a third down and that even the mid-market has been slightly protected, not as worse. So definitely the larger deals have quietened down. If I look at the mid-market, the volumes there are down sort of 16 to 19%. So a little bit of an impact, but quite quite insulated probably from the bigger deals. And we can come back to why that might be the case. The flip side of that is we've 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 the environment's had a huge impact on private equity deals. If you look at the financial services world in general, it's slightly wider and that's not been immune either, but slightly protected volumes down about 14% only. But insurance deals. Funny enough, I'm quite sure why they're down over 40% compared to last year. Linked to private equity I think is important as well, which is compared to last year. Certainly this year we're seeing a real contraction in the debt market, which obviously is quite important to the private equity deal. And the cost of that debt obviously has gone up as insurance rates around the world have tracked upwards. But also the availability, the quantum of the available debt has come down. So that's put a lot of pressure on the appetite in the private equity world to to actually go and do some deals. So a bit of nervousness, a little bit of caution, not quite sure what the macro environment holds. 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, put it that way. 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.

Paul: Okay. So nervousness in the market. Deals are down, but perhaps some optimism in the second half of the year. Mike, would you agree?

Mike: Yeah, I think so. I think I think deals are down, but clearly that's probably measured against the all time high of 2021. So again, I think I think, as Mark said, the quantum of deals have reduced, but it was that all time high where a lot of those will probably recall were being driven by fears around changes in CGT which never actually transpired. So I think I agree with Mark, we are seeing less deals. Clearly, there's a number of PE back consolidators looking to build out their platforms, which has meant the top end of the market has been hollowed out a little bit. But looking at the overall quantum of brokers in the market, they are still there and there's still plenty there. I think as Mark said, the actual cost of debt will be an issue. I remember when we we were owned by private equity. We actually paid 0% margin over Sonya, which is the sort of standard base rate deals now or debt now is being raised at close to 4% more. So the overall cost of funding these deals has increased quite significantly. Pricing, I think you mentioned pricing as well. We're actually seeing no change in pricing. And again, I think that's being driven by maybe people who started their journey only a couple of years ago. They have funds they almost have to deploy to to fulfill their model. So that almost seems to be driving what we think in some in some areas is, is maybe quite, quite rich and in some cases unrealistic pricing. So I know we'll talk about some of the perils of M&A later, but I do think that whole sort of buying for buying sake is a dangerous path to go down.

Paul: Yeah, that's such a great point as well, isn't it? Powell if I can bring you into the conversation as well. I mean, if we're looking at those figures for this year, we do have to compare them to what went before. And it was a record breaking year in 2021.

Powell: Yes, it was. And and just talking briefly about the United States deal flows down there probably in a similar fashion, pricing. We haven't seen an enormous change backwards, but cost of debt has gone up substantially. And we believe that the Federal Reserve will increase interest rates at least for the next two meetings. So they just raised it 25 basis points and we anticipate another 25 each of those meetings in the United States. There is a feeling that the economy is going to cool, but it's not going to be a deep recession. That's a very common feel out there today as it relates to transactions, particularly anything of larger size. I think that private equity continues and will continue to be a very active participant in the marketplace. But you may have to see some combinations of firms getting together to finance deals because of the leverage or the cost of that debt. And so it'll be interesting to see how that pans out over the next year or two.

Paul: So with so much activity in the market, perhaps in the year ahead, when should companies consider selling and what should they look for in a potential buyer? Dominic, you've been through the process. I'll start with you.

Mark: That's a very good question because I don't think anyone necessarily knows the absolute perfect time to sell. But I think the most important factor initially is for all stakeholders to agree that the business needs to sell. For from our perspective, we were always advised that you should. The best time to sell a business is when you're on an upward curve and and also know your buyer because we never had any experience of selling a business. And whilst it's important to get the right price for your business, it's just as important looking for the future. Who can invest in your business with a partner that you wish to move forward with over the forthcoming years?

Paul: Yeah, and Powell, of course, you're on the other side of the fence. How do you see things? When's the right time to sell if you're a broker? And I guess for you, when's the right time to buy?

Powell: I don't think there's a specific time that's the right time to buy or sell. I we believe it's all about cultural fit. And so some people are attracted to different models that are slightly shorter term in nature. Our firm, we think about transactions forever. So we want to understand what drives the culture and the core values in an organization. And you don't get to figure that all out in one lunch or one dinner or one meeting. And so I believe that if you're if you're considering selling, I always say pick a firm that you believe you fit culturally best with. Then go and get in the corner and negotiate a deal. The market, it will drive the pricing and everything will generally be in the same area. And you may find a firm that you fit with culturally, but they're not able to pay the amount and that may make your decision harder. But I think cultural fit is the most important because if you sell categorically on price, I would guarantee you that most owners will not be there in three years or less because they won't like the ownership structure. It's that simple.

Paul: Okay, so we know what the brokers are thinking and we know what the acquirers are looking for. But I want to know what the insurers make of the whole situation. So, Jon, think naturally I have to come to you. What are you making of this consolidation activity?

Jon: Yeah, thanks for the question, Paul. I would summarize, I think, by saying with increasing positivity, so and a degree of inevitability as well, which I don't mean in a in a negative way at all. But clearly the industry has seen a lot of M&A activity over many years now. And genuinely what I would say is within increasingly the quality of thinking and structure that goes into deals that are being made, the rationale for them is improving all of the time. We equally have seen, I think, acquiring firms invest in leadership capability, in M&A capability, in data, MRI technology and all of those things are important for all stakeholders, actually including insurers, because it enables us to have a better quality conversation. It enables us to sit around the table and say on the back of an acquisition, what does this mean? Where are the opportunities to develop customer propositions? Are there any segments that perhaps as an insurer we don't want to grow in? And that's a conversation that's perfectly okay. Okay to have. But you can have those conversations on the back of the investment that has been that has been taken. And I think the other thing that's incredibly important is the relationship that exists on an overarching level between the insurer and and not just the acquirer, but also the business that's being purchased. But that relationship has to work at two levels. It has to work centrally across the senior teams, but it also has to be a relationship from a trading perspective that works on the ground between underwriters and insurers and account executives in the in the broking firm. So I think as time has gone on, the thinking has improved. The engagement between all parties has it has improved. And increasingly I feel, see and hear more conversations about the customer. What's good here for the customer? What can we do differently that gives a customer a better proposition? Because if customer gets a better proposition, it's a win win. Retention rates will go up and the proposition out in the marketplace will be attractive to win new customers as well. So increasingly positive is how I would I would describe it as the M&A market has evolved over many years.

Paul: Yeah. That's interesting, of course, to get the insurer perspective, but there are many more facets of the supply chain. So Tara this leads me neatly to you. What are you making of the whole consolidation trend?

Tara: Well, I think I would echo many of Jon's comments about how this area has evolved in recent years. Definitely the investment in capability technology, core competencies and just a really general, you know, a real improvement in the whole coordination of what needs to happen when businesses are integrating, they're integrating better. And actually for premium finance companies like like ours, that's only a good thing because actually the investment in technology means we're able to plug in much easier. It works better. I think the investment in the people and capabilities mean we partner better together. And I think from our perspective as as providers of finance, what we see is a real investment in the offer of finance. And actually that's a good thing for everybody. Customers being offered the product alongside their insurances is good for everybody. So for me, I would absolutely agree. I think in recent years, the investment that these companies are making in M&A and doing it really, really well is benefiting everybody, including premium finance providers.

Paul: Yes, a great roundtable today. Everybody. Thank you so much to our expert panel, to Powell Brown, to Mike, Dominic, Mark, Jon and Tara. And if you're thinking, Wait, I want to know more. What are the pros and cons of consolidation and where are the mistakes typically made? Well, stay tuned because we'll be back soon with Global Risk Partners and the same brilliant panel right here on Insurance business TV.