Eye for a bargain: M&A activity to rebound in 2021

Deal-making was up in the first half of 2020 but experts at Clyde & Co predict a drop in M&A activity in the latter half of the year as the COVID-19 effect makes itself known. Those looking for opportunities may be in a better position in 2021 as Intelligent Insurer looks at the trends driving the predicted comeback for M&A next year.

Growth may not have seemed like the biggest priority as the world wrestled with the outbreak of COVID-19 in the first half of this year. But mergers and acquisitions (M&A) activity in the global insurance industry held steady with 201 completed deals worldwide, up from 197 in the second half of 2019, a rise of 2 percent.

This is according to the “Insurance Growth Report” (mid-year update), published by Clyde & Co on August 17, 2020.

The figures, to a certain degree, show the result of deals in the pipeline before H1 2020 but the trends highlighted in the report make for interesting reading.

M&A activity in all regions, except Europe, increased. In the America region M&A were up by 1.1 percent, in Asia-Pacific they were up 22.6 percent, and in Middle East & Africa the number of deals more than doubled to 15, up from 7 in the second half of 2019.

In Europe transactions dropped by 20.9 percent, falling to 53 M&A from 67 in H2 2019.

This rise in M&A, with the exception of Europe, comes in spite of an acknowledgement by the report authors that for many, responding to COVID-19 has “meant putting growth ambitions to one side”.

Rather than focusing on growth many businesses are taking stock of the impact of the pandemic on operations, claims and investment returns

The need for positive returns

Why has there been an uptick in deals in the first half of this year?

Clyde & Co says that as the global economy “moves towards a state of stability that could be defined as ‘the new normal’”, opportunities will arise for re/insurers to generate a positive return for their shareholders. 

In this regard, M&A remains an attractive strategy to deliver growth. The numbers may have been up in H1 2020 but, the report says, for the second half of this year activity is expected to drop off as the effect of the pandemic is seen in the level of completed deals.

Early signs of the expected drop in deal-making came in the form of a slowdown in megadeals in the first half of 2020. The report says there were just six transactions in H1 2020 valued at more than $1 billion, compared with 20 for the whole of 2019.

The report confirms that the deals completed in the first half of 2020 would have been negotiated and agreed in 2019, pre-pandemic.

“The impact of COVID-19 on insurance M&A will only become clear in the coming months and we expect it to be stark. There are practical reasons for this, not least that lockdown has made it very challenging to progress deals as it has been impossible to meet face to face to negotiate,” it says.

On top of these restrictions, uncertainty, which the report calls “the enemy of deal-making”, is very clear. No-one really knows what will happen and how these changes will affect the availability of financing or the confidence of buyers.

“The market is not at a standstill, but strategic and financial buyers are putting heightened focus on deals that make sense to them,” the report adds.

A fall in M&A leaves the way clear for re/insurance transactions to “make a comeback in 2021”, according to Clyde & Co.

Advances in technology and the desire not to be left behind are still driving M&A worldwide.

Legacy a driver

Legacy is expected to drive more deals as distressed businesses come into the spotlight, particularly as re/insurers pull out of certain lines, industries or geographies. 

“Those looking to rationalise their operations will move to divest teams and books of businesses that do not fit with their core strategy.

“In 2021, we expect an increase in the number of targets being offered for a sale and a greater interest in legacy business,” the report’s authors write.

One example of what the report describes as “an early mover” in the legacy arena is portfolio refinement specialist Gossmann & Cie. In July 2020, the firm received a licence to operate its risk carrier, a protected cell company based in Malta.

The report also points to two recently enacted restructuring tools in the US, which it says “could lead to a burst of deal activity”.

It explains that the US has not historically had the mechanisms in place to enable legacy activity but the tools known as Insurance Business Transfers and Corporate Divisions could be the difference.

The US was “poised for a slowdown” in deals even before the pandemic, the report says.

Reported figures show there were 64 completed deals involving US buyers in H1 2020, down from 73 in the previous six months. This marks the third consecutive period of falling activity. 

“In part this is due to the cyclical nature of transactions—after a sustained period of deal-making, valuations had risen and some investors have been pausing to take stock.

“Others have been wary of geopolitical tensions, particularly with China, and the upcoming US presidential election adds another layer of uncertainty,” says the report.

M&A in Europe have dropped to a three-year low in H1 2020 as uncertainty around Brexit, in addition to “difficulties in reaching valuations”, makes deals trickier and less attractive.

High-quality tech offerings are still attractive, provided they can prove their worth.


Advances in technology and the desire not to be left behind are still driving M&A worldwide. 

The report highlights tech-related deals such as the investments in US-based startup Openly, Belgium’s Keypoint and yallacompare in the United Arab Emirates in H1 2020. 

Insurtech investment did plummet in the first quarter of the year due to COVID-19 but “it rebounded in the second quarter”, the report says.

One trend that Clyde & Co expects to continue and become stronger is that investors are already becoming more selective.

“High-quality tech offerings are still attractive, provided they can prove their worth. Startups now reaching maturity with a proven track record are ripe for acquisition and we expect this to be a key deal driver in H1 2021.”

However, there is the issue of more access to capital, which could dampen enthusiasm for doing deals when it might make more sense to grow organically.  The pandemic has accelerated existing market hardening, bringing with it opportunities for exactly this kind of growth.  

The report says that capital-raising has been a feature of the current market—reaching $16 billion in H1 2020 according to Willis—with re/insurers happy to write more risk at a higher price but needing to offset losses from COVID-19 to enable them to do so. 

Increased rates pave the way for a wave of new startups and scale-ups.  The report says for these plans to succeed the choice of location will be interesting.

“Although Bermuda’s tax advantages have gone, the absence of red tape is appealing, while Lloyd’s will be keen to attract its share, provided businesses can deliver on profitability and performance targets.”

Commenting on M&A more broadly, Vikram Sidhu, partner New York at Clyde & Co, says: “Strategic and financial buyers had already begun to place heightened focus on deals that really make sense for them, which is a trend that will accelerate in the fallout from COVID-19.”

Images (from top): Shutterstock / Andrii Yalanskyi, TK Kurikawa