PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for the rest of 2021.
Deal activity picked up where it left off at the end of 2020 with an active first half of 2021, highlighted by five megadeals. In the first five months of 2021, there were 215 announced transactions, with $24.6 billion in announced deal value. Deal volume was driven primarily by announced M&A in the insurance brokerage space, continuing a long-term trend of consolidation among distributors. Announced acquisitions of life and annuity carriers drove the majority of announced deal value, as we continue to see large-scale realignment among carriers affected by the persistent low-interest rate environment. Standouts included megadeal announcements of Apollo Global Management Inc.’s acquisition of Athene Holding Ltd. for $11 billion, Arthur J. Gallagher & Co. acquisition of WillisRe and other Willis Towers Watson assets (WTW) for $3.7 billion, and MassMutual’s acquisition of Great American Life Insurance Company for $3.5 billion.
We expect continued strong M&A activity in the insurance sector as we head into the second half of 2021, driven by record levels of deployable capital and continued interest in insurance carriers and distribution. In fact, the flurry of activity through the first half of 2021 has led to a constraint on deal advisor resources.
We expect private equity firms and asset managers to continue their push into the insurance sector, specifically in the life insurance and annuity space. As we note in the summary overview, we’ve seen several large private equity players acquire on balance sheet insurance platforms over the last few years. Going forward, we expect those platforms to be active while other private equity and asset managers also enter the space with acquisitions of insurance carriers or blocks of business to increase assets under management. The entries of these investors will collide with strong sell-side interest from carriers looking to divest non-core assets. We’ve also seen an increased interest in acquisitions from mutual insurers, who are strategically deploying capital to acquire blocks of business as they seek to grow and offer new products.
That said, the active insurance deal market may face regulatory headwinds from uncertainty surrounding potential corporate income tax rate increases and other changes, and the development of global minimum tax rules in response to Pillar Two of the Organisation for Economic Co-operation and Development (OECD) / G20 Base Erosion and Profit Shifting (BEPS) Project. In addition, there is uncertainty about how long the low-interest rate environment will persist. If interest rates do increase, it may drive interest in insurance carrier targets and attract more buyers in the space.
We’ve also seen increased attention from regulators, both in the US and globally, on the consolidation in the insurance brokerage space and the risk of concentration with top brokers and agents (e.g., the recent Gallagher and WTW deal).
“The pace and magnitude of insurance dealmaking continued to accelerate in the first half of the year as sellers look to capitalize on the high valuations driven by strong demand for insurance businesses.”
Partner, Deals Practice, PwC US
Partner, Deals Practice, PwC US