M&A activity to rise due to “PE dry powder” – BMS report

Mergers and acquisitions (M&A) liability insurance business could get a bounce from an uptick in M&A activity this year, according to the fourth edition of BMS’s global Private Equity, M&A and Tax (PEMAT) report.

The re/insurance broker said 2023 saw dealmakers and insurers manage the fallout from the Covid-19 pandemic, as predicted in the previous report, as well as the emergence of macro developments, such as geopolitical tensions and increased regulatory scrutiny – all leading to a soft M&A insurance market.

Looking to 2024, the intermediary suggests there are foundations for optimism.

Private equity funds have been able to increase their committed but unallocated funds, and 2023 saw a 21% increase in overall enquiries for the BMS PEMAT team compared with 2022.

BMS said this suggested strong transaction appetite, and that dealmakers have the capacity to make up for an inactive year.

Since its launch in 2020, BMS’s PEMAT team has worked on more than 200 M&A deals globally, the broker said, with a total transaction value of more than $100bn.

Key findings

• Macroeconomic developments and the latent impacts of Covid-19 caused low deal activity leading to a soft M&A insurance market with an abundance of capacity being readily available and insurers lowering premiums and average policy retentions to win business
• The soft market emphasised disparities in valuations between buyers and sellers and proved an obstacle to deal completion
• After an era of cheap debt, the wave of insolvencies because of Covid-19 came to fruition, but this didn’t translate into an increase in distressed sales in 2023 but there may be more to come in 2024
• The secondaries market saw a slow start to 2023 but increased in activity in Q4 with LP-to-LP transfers dominating transaction volumes as the denominator effect continued to drive the sell-off of GP interests
• While 2023 was quieter from a dealmaking perspective, warranty & indemnity claims saw a surge in activity off the back of the boom of M&A activity in 2021 and 2022
• Renewables and energy, financial services and retail & consumer were the most resilient sectors, seeing increases in deal volume in 2023 compared with 2022, despite the M&A downturn
• Asia, the Middle East, and India were the most stable markets. Asia saw an influx of new insurers and exhibited a broader risk appetite, and while the Middle East and India saw a decrease in the overall number of deals, an increase in $1bn+ enterprise value deals saw the value of transactions remain close to 2022
• Despite the downturn in activity, an overall increase in enquiries made in 2023 compared with 2022 of 21% suggests a strong transaction appetite going into 2024

Tan Pawar, managing director and head of BMS’s PEMAT practice, said: “The market in 2023 was suppressed by challenging socio-economic and geopolitical developments and with those circumstances going nowhere fast and several upcoming elections, they will continue to influence deal flow.

“However, 2024 promises to be dynamic. Reduced interest rates and substantial dry powder within PE houses are likely to stimulate investment activity. At the same time, the appeal of emerging markets, as well as the resilience of sectors like renewables and infrastructure, will keep market conditions evolving.”

The full report can be read, here.