Last year saw strong M&A activity across the globe, with many companies turning a profit for the first time in five years. However, insurers were less active on this front, as many of them were still consolidating their assets and having a cautious outlook on COVID-19’s impact on the global economy. We look at the trends that drove M&A activity in 2021, and what might be trending in 2022.
Global M&A activity had a positive performance for the first time since 2016. Based on share-price performance, companies making M&A deals outperformed the World Index by +1.4 percentage points on average, according to Willis Towers Watson (WTW).
Data that the broker collected also revealed that global activity reached a new high, as there were 1,047 completed deals that were valued over $100m in 2021. This represents a significant increase on the previous year (674) and is the highest annual volume since WTW’s analysis began in 2008.
For the full year, APAC dealmakers recorded their strongest performance since 2016, outperforming their index by +16.8pp, despite closing only fractionally more deals regionally compared to 2020 (196 vs 173), as fewer Chinese acquisitions continued to depress volume levels.
The data also shows a changing landscape of deals by Asian companies. “An excess of one in four of deals by Japanese companies are still cross-regional (outside of APAC), whereas that factor is only around one in 20 for Chinese companies,” said WTW head of human capital M&A consulting, APAC Massimo Borghello.
Insurer activity was low
For insurance however, the Asia M&A market was fairly quiet in 2021. “There is a continuing sense of caution with dealmaker confidence weighed down by COVID-19. There was a degree of optimism in 2020 about the M&A market but with the continuation of the pandemic this enthusiasm has waned. Uncertainty is the enemy of M&A and buyers looking at potential targets are just not sure how they might perform in the medium term,” said Clyde & Co partner Joyce Chan.
Among all the deals that have closed in 2021 and were valued more than $100m, there were two insurance M&As deals in APAC and they were: AIA-Bank of East Asia Life in Hong Kong and Steadfast-Coverforce in Australia.
“However, there were a few others that have been announced in the industry but still in the process of undergoing regulatory approval, such as the acquisitions by HSBC Life in Singapore, by both Generali and Liberty Mutual in Malaysia and by Chubb regionally multi-country. Henceforth, there could be more M&A activities than shown in the database of closed deals,” said Mr Borghello.
Non-insurers are divesting insurance assets
As highlighted by AIA’s acquisition of the Bank of East Asia’s life insurance arm, many non-insurance businesses are getting rid of their insurance assets to refocus on their core operations. Further, under the terms of the deal, AIA will have an exclusive 15-year distribution partnership with the bank, a valuable strategic alliance that will enable it to broaden its customer reach. Both these trends will likely continue going forward, said Ms Chan.
At the same time, most insurers are focusing on technology in the deals that they made last year. The focus on pure innovation has dimmed slightly, with companies instead broadening their use of existing technologies to enhance and upgrade the customer experience.
“As an example, through the use of better data analytics and artificial intelligence at every stage of the insurance cycle, from quoting through underwriting to claims handling. Any potential tie-up that can help deliver on this objective will be attractive,” she said.
Improving digital capabilities
The appetite for acquiring digital capabilities and digital talent will continue to drive deals in the InsurTech space, said Mr Borghello. “The so-called great resignation, which has forced companies to re-evaluate how to retain and acquire new talent in a scarce labour market, will continue to be a factor with companies under pressure to acquire high-end talent in fields such as cyber security and software engineering.”
WTW M&A data reveals that 293 large and mega deals, those valued at over $1bn, were completed in 2021, the highest number recorded as companies shaped their post-COVID future through transformative acquisitions. This may well be surpassed in 2022 as companies and investors flush with cash continue to look for acquisitions in areas where they need to grow or add capabilities.
He noted that the impact of regulatory changes that have relaxed foreign ownership limits will also be a driving factor for deals in 2022. “Overseas multinationals will also have differing strategies, with some doubling down on the Asian region and others limiting or reducing exposure. These will result in more deals being struck this year.”
Climate change a top concern
He also shared his top trends for deals that will happen this year, which includes ESG concerns, supply chain self-sufficiency and accelerating digital transformation.
“ESG priorities are climbing to the top of CEO agendas, with greater emphasis to drive employee engagement in a hybrid world of work and purchasing, rationalising or divesting assets to improve their environmental footprint. Themes such as decarbonisation will drive deals and there will also be opportunities for new ventures stemming from climate risk mitigation innovation,” he said.
Ms Chan shared the same sentiments, noting that these are hot topics for boards globally. “This year, increasingly, we will see ESG initiatives moving up the agenda for insurers. This may have an impact on M&A – targets with poor ESG credentials could be perceived as unattractive. Conversely, those that offer products or services that support the ESG agenda are likely to be in demand.”
She added that there will be relatively muted appetite for M&A in Asia with investors looking towards alternative routes to growth. “Accessing new territories and new customers by setting up operations is one option. Late last year China Pacific Life Insurance obtained a license to enter the Hong Kong life market. We may see others looking to make similar moves, attracted by the opportunities to grow regionally and internationally without having to deal with the legacy issues often associated with an acquisition.”
Another alternative to M&A is to enter into agreements with distribution partners in non-insurance sectors that allow insurers to broaden their demographic reach out without having to acquire a business. This is a growing phenomenon across Asia, she said.
Mr Borghello said, “China looks unlikely to remain the powerhouse of international, cross-border deals, which may serve to stimulate activity in other places such as Japan, India and Southeast Asia. This trend is already evident in our data, whih reveals cross border M&A activity during 2021 has remained at a steady level despite depressed deal activity from China.” A