Why is commercial insurance broking M&A activity moving to Europe and what does this mean for independent UK brokers
The UK commercial insurance broking market has been experiencing a boom in consolidation over a number of years. Whilst the UK market is still fragmented, with a sizeable number of small brokers, there is an increasingly scarce number of independents of scale that could either ‘move the dial’ for the growing trade consolidators, or be a standalone platform investment for a private equity house.
both trade consolidators and private equity investors are looking into less mature and more fragmented markets in Europe
Consequently, both trade consolidators and private equity investors are looking into less mature and more fragmented markets in Europe for the next wave of M&A activity to support longer term growth. We are now seeing increasing levels of consolidation in Benelux, DACH and Iberia.
The M&A drivers are the same as the UK, such as resilient earnings, attractive synergy potential (revenue and cost), material multiple arbitrage opportunity (on smaller acquisitions versus group exit) and the availability of debt funding. The supply side is supported by retiring brokers and the increasing costs and regulatory burden for smaller players, plus the first wave of primary private equity exits in European geographies that could be interesting larger targets for UK consolidators and investors.
Larger consolidators such as Ardonagh (Classicus, Klap, MDS), Howden/Aston Lark (Assiteca, March, SeaSecure), PIB (Grupo VG Europe, Privat Asesoramiento, Area Brokers Industria) and GGW are already highly active in European territories, completing a number of acquisitions in 2023 to date. We are also now seeing smaller UK commercial insurance groups looking to develop platforms in Europe and private equity investors, who have experienced success with a UK platform investment, looking to repeat this in Europe.
This European focus could see reduced interest for UK businesses and could result in some downward pressure on the strong valuations the sector continues to experience, though the scarcity value of the larger independents may help mitigate, along with the inherent attractiveness of the sector (e.g., predictable and sticky revenues and asset-light models). Proven non-inflationary organic growth capability is likely to become more of a differentiator for buyer interest and valuation. Valuations have substantially held up in the UK and more mature European markets (such as the Netherlands), despite inflationary pressures and the base rate rises, though these clearly impact equity investor return models.
The UK market will continue to polarise as the smaller consolidators are themselves consolidated
Over the medium term, smaller UK consolidators should still be able to continue to acquire regional independents to supplement organic growth and drive value creation given the multiple arbitrage and synergies, but there will likely come a point where strong growth ambition will need geographic expansion, or vertical integration such as expansion into MGA activities, to capture further margin opportunity. The UK market will continue to polarise as the smaller consolidators are themselves consolidated.
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A version of this article was recently featured in Insurance Age.
If you’d like to discuss anything mentioned above, please contact Partner and Head of Financial Services Greg Cant, or Senior Associate, Hamish Batchelor.
