European Insurance M&A Barometer: Q3 2022 Update

Executive Summary

Deal volumes declined, with 76 announced transactions versus 110 in Q2 and 106 in Q1. While part of this can be attributed to economic turmoil and the rising cost of debt financing, volumes naturally decline over the summer: Q3 2021 had 78 deals. However, for the year to date (YTD), deal activity is still at an all-time high with 292 deals announced so far in 2022 compared to 280 in Q1-Q3 2021 and 190 in Q1-Q3 2020. Most acquisitions were made by broker consolidators with private equity (PE) backing, continuing an existing market trend. Strategic buyers accounted for around a third of transactions across Europe, down from around half in Q2.

Financial sponsors’ appetite for distribution and service deals persisted, with 39 acquisitions by PE-backed portfolio companies and 12 directly by PE funds. Rollup consolidation continued to dominate European transaction volumes for both pure strategic acquirers and PE-backed platforms, with major broker consolidators announcing 37 transactions compared with 35 in Q3 2021. This group represented 48% of announcements – a similar proportion to Q3 2021’s 45% and larger than the 37% in Q2 2022.

The UK and Ireland continued to lead the European market for insurance M&A, fuelled by strong consolidation activity by intermediaries, particularly GRP, Howden/Aston Lark, PIB and the Jensten Group. An uptick in acquisitions of managing general agents (MGAs) reflects an appetite for capital-light businesses. However, challenging market conditions and macroeconomic uncertainties are impacting on the UK personal lines sector and have led to some processes being pulled in the quarter, most notably QMetric’s.

France, Iberia and the DACH region experienced increased M&A activity this quarter, mostly driven by acquisitions of distribution businesses complementing European expansion of international broker platforms. German broker consolidators such as MRH Trowe and GGW carried out several transactions in the DACH region.

In Benelux and the Nordics, M&A volumes slowed down relative to prior years but still saw some noteworthy transactions. A decrease in deal announcements across Central and Eastern Europe (CEE) likely reflects the ongoing geopolitical crisis there.

Overall, rates have largely continued to harden for classes of business that are experiencing claims inflation, lack of capacity and higher frequency and severity (e.g., property). Europe is facing an energy crisis predominantly due to Russian gas supply reductions, causing an inflationary spiral in economies already suffering post-pandemic stagnation. This energy crisis and extreme weather events are causing pivotal shifts in demand for property, cargo, business interruption and energy-related insurance. PE and strategic buyers are likely to target brokers and carriers whose track record shows they can adapt to evolving macroeconomic dynamics and address gaps in risk protection.

Rising interest rates continue to present a potential headwind to the buyouts market as debt financing becomes more expensive with the threat of recession. Central banks are raising base rates to counter inflation; however, high levels of “dry powder” in the market, built up through record fundraising rounds during the pandemic, enable PE funds and PE-backed portfolio companies to still deploy capital to suitable opportunities. As brokers and service providers continue to face competitive auctions, valuation multiples remain elevated, with Cinven reportedly paying c.18x EBITDA for Nordic broker consolidator Säkra.

US PE firms and strategic buyers maintain their strong interest in the European brokerage and services sector; 10 of Q3’s acquisitions had US-based bidders, taking the total to 38 for the YTD. The strong dollar may encourage further US takeovers.

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