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Life Deals Fuel Jump in UK Insurance M&A Activity

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Fueled by large life deals, the U.K. insurance sector saw more mergers and acquisitions activity in the first half of 2018 than in either the full year of 2017 and 2016, according to consultant Ernst & Young (EY).

U.S. Tax Reform One of Many Drivers

Telecommunications, automotive and healthcare top the list of sectors for deals with the highest value, with strong levels of UK/U.S. M&A expected to continue, partly spurred by U.S. tax reform.

The overall value of UK M&A reached levels similar to those last seen in Q1 2007, which remains the high watermark for deals activity. UK M&A totaled $120bn and 681 deals, more than twice the overall value of transactions in Q4 2017 ($51bn, 586 deals) but shy of the $147bn and 1,045 deals seen in Q1 2007.

While domestic ($32bn and 366 deals in Q1 2018 vs $27bn and 310 deals in Q4 2017) and outbound (£21bn and 138 deals vs $12bn and 143 deals in Q4 2017) M&A saw significant increases in both value and volume compared to the previous quarter, it was inbound M&A that lead the way. Value for inbound transactions jumped from $11bn and 133 deals in the last quarter of 2017 to $67bn and 177 deals in Q1 this year.

At a sector level, telecommunications ($44.6bn), automobile ($18bn) and healthcare ($13.5bn) top the list of sectors with the highest transaction values, while computers and electronics together with professional services saw the most deals with 151 and 105 transactions respectively.

According to EY’s data, U.S. investors topped the list of foreign acquirers buying UK firms followed by France, Switzerland, Japan and the Netherlands. The first quarter of 2018 saw 68 deals from the US into the UK worth $60bn. At the same time, the US was the second most favored destination for UK companies doing deals abroad ($4bn, 38 deals), after Switzerland and followed by Germany, Oman and France.

Steve Ivermee, EY’s Managing Partner for Transaction Advisory Services in the UK & Ireland, comments:

“The UK deals market has experienced a very healthy start to the year as UK companies with presence in international markets remain particularly attractive to international investors. More significantly, we see UK businesses continuing to make deals internationally. The significant increase in inbound transactions is likely to lead to a new environment for M&A and deal makers. Some of these deals are likely to face increased scrutiny by regulators, Government and the public about their purpose, which will need to extend beyond cost savings. Articulating this narrative in a compelling way to ensure all stakeholders are onside will become increasingly key to help ensure deals are done.”

He continues: “The trade flow between the UK and the US has always been strong and there is no sign of slowing. Shifts in policy, such as the recent US tax reforms, could trigger some near-term large deals, as boardrooms reassess capital allocation between the US and non-US territories. ”

In conclusion, “Looking ahead we can expect an equally strong Q2 as businesses look to lock in more favorable financing prior to any interest rate increases. The biggest M&A story of 2018, however, will be the continuing era of portfolio transformation. Companies will continue to reshape themselves and acquire technology and digital assets that will help define their future. Tech-smart deals will help companies future-proof their operations and address continuously changing business models.”

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