Insurance sector mergers and acquisitions activity slowed during the second half of 2022 on the combined effects of increased borrowing costs, economic uncertainty and inflation, which are forecast to remain under headwinds into 2023, according to a report Thursday from PriceWaterhouseCoopers LLP.
For the six-month period from mid-May 2022 through mid-November 2022, there were 205 announced transactions totaling $2 billion in announced deal value, compared with 343 announced transactions and $15.4 billion in deal value announced in the previous six-month period from mid-November 2021 through mid-May 2022.
Brokerage transactions constituted the bulk of deal volume, with 189 of the 203 insurance deals announced related to brokers and the remaining 14 to underwriters, the report said.
Deal headwinds grew more acute as the year progressed, PwC said. “Toward the end of the year, we began to see a more pronounced impact from economic uncertainty, as deal activity slowed even further, with only 29 announced deals from the end of September through mid-November.
Such pressures are forecast to continue into the next year even as private equity buyers maintain their interest in the sector.
“We expect economic headwinds to persist into the first quarter of 2023 as companies evaluate the impacts of inflation and interest rates on deal values. As has been the case historically, we expect private equity buyer demand for resilient, EBITDA generating business, such as insurance brokerage companies, to remain strong.”
Corporate buyers with strong balance sheets may also become reinterested in the insurance deals market as valuations decline in the “cooling” economy, PwC said.