PE hot for insurance sector

European PE activity was surprisingly solid in July across the board, at a time when deal-doers are usually starting to take their foot off the pedal or starting work on longer-term processes. But there was one sector in particular that registered a significant month-on-month uptick: according to Unquote Data, Europe was home to 10 insurance deals in July, far outpacing the monthly average of two transactions seen since January 2016.

Some of these transactions made headlines due to their size, with deals in the sector in July reaching nearly €3.2bn in estimated aggregate value – easily setting a post-crisis record. Chief among these was Cinven transferring German portfolio company Viridium Group into its latest fund and providing additional equity funding for the bolt-on of another life insurance business, Generali Lebensversicherung. The deal could reportedly be worth up to €1.9bn including debt. Eurazeo also entered talks to acquire French insurance company Albingia, with sources in a report by Unquote sister publication Mergermarket mentioning that the well-sought-after company generated €226m revenues in 2017 and could be valued at up to €500-600m.

The trend has continued into August as well, with Cinven agreeing to acquire Ireland-headquartered life insurance business Axa Life Europe (ALE) from Axa Group in a deal that would value the company at €925m. Though both companies operate in the life insurance space, Unquote understands that ALE and the aforementioned Viridium investment will remain entirely separate businesses, with independent M&A strategies operating in different areas of the sector.

Most recently, Bain Capital received board approval from UK insurance company Esure for a £1.2bn take-private deal. The business was previously owned by Penta Capital and Epiris, which acquired it in a £270m deal in 2010 and listed it three years later with a market cap of £1.2bn.

Breaking records
July stands out as something of an outlier, but the longer-term trend is also suggesting this increase is not a mere blip. So far, 2018 has been home to 29 deals worth an estimated €7.4bn in aggregate value, according to Unquote Data. This already exceeds the 27 deals worth around €4.4bn seen for the whole of 2017 – a year that itself marked a sharp increase in deal-doing in the sector and set a new post-crisis record. Prior to that, the insurance space had been home to around 13 deals per year on average.

Activity at the upper-end of the market has been particularly high this year. In addition to the deals mentioned above, Ardian invested €200m in French smartphone and multimedia insurance broker SFAM in a February deal reportedly valuing the business at €1.7bn. Ardian, again, and Edmond de Rothschild also entered exclusive negotiations to sell their stakes in France-based broker Siaci Saint Honore, with Charterhouse becoming a minority stakeholder. Overall, there have already been five transactions thought to be valued in excess of €500m each in 2018, against two per year on average since 2010.

The bulk of activity seen across 2017-2018 was unsurprisingly in the insurance brokerage space, accounting for two thirds of deal-doing in the wider insurance space by volume – although dealflow for actual insurance businesses also started increasing around mid-2017. In terms of geographies, the UK has seen the lion's share of the action, being home to 28 deals over the past 18 months, which accounts for half of all European activity.

With steady cash-flows and high revenues often cited as key factors driving PE interest for the sector, recent deals have also highlighted other strategic considerations at play. Cinven in particular noted that the European variable annuity and life insurance market remain highly fragmented, presenting strong opportunities for buy-and-build plays. The GP also pointed out that a number of European insurers were planning to dispose of their now non-core guaranteed back-book portfolios, thus creating further M&A opportunities.

Solvency II also remains a key consideration: Aleph Capital and Crestview Partners, which injected €260m into German direct insurance and reinsurance company Darag in late July, said they expected the business to benefit from insurance companies being pushed to exit parts of their businesses in the Solvency II framework.

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