Merger and Acquisition Trends in the Insurance Industry

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Compared to 2012, the levels of mergers and acquisitions activity were not that high in 2013, especially in the insurance industry. In fact, the sector saw the slowest ever pace in the last couple of years. Obviously, there were many negative factors in the picture such as the macroeconomic uncertainty, high company valuations and so on. The good thing is that even though 2013 was not that amazing, the industry experts are still hopeful that 2014 is going to be much better. And they have plenty of evidence to back this up. For instance, the effects of 2013 tax changes is now being reduced, there seem to be more buyers around, the economy is improving and there are so many acquirers who have already formulated a pipeline for themselves.  Combine all of this, and the M&A industry will have a positive year especially in the insurance segment.

According to the stats, there were 416 insurance related merger deals in the year 2012, and in 2013, it was a much lesser number, at around 224. In 2014, it will possibly increase because there is more demand now.

As already mentioned, 2013 did not see enough deals because of tax issues. Considering the fourth quarter of 2012, that was a time when more than 130 insurance brokers finalized over 20 carrier deals. This nearly doubles the value of the quarterly average of the past four years. Since 2013 had to see a rise in capital gains taxes, most of the M&A activity took place towards the end of 2012, and the next year was nearly ripped of deals. With regards to this year, no changes are being made to taxes that can affect the M&A industry.

Coming onto the number of buyers in the market, they are indeed growing. In the past three years, nearly 90% of the deals involved corporations or strategic buyers. In recent times, more interest has been developed in the sector because of private equity funds, resulting in more opportunities in the industry. Most insurance brokers have a fee structure that generates stable cash flows and not incurring significant risks. This structure is just what is liked by private equity firms, and so they have employed it in the past and will do more of it this year.

Meanwhile, let’s sit back and see if 2014 will blow up an M&A raving storm.


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