Industry the April 2024 issue

A Vibrant European Market

U.K. Hits Record High
By Phil Trem Posted on April 1, 2024

Despite high inflation and increased capital costs, the rate of consolidation in Europe’s insurance brokerage markets continues to soar.

The long-term potential for consolidation in Europe is influenced by a fragmented industry, changing regulations, an aging workforce, digitization challenges and growing demand for high-quality and differentiated services for clients. There is ample room for further growth in premium volume.

Consolidation and evolving business models have been an ongoing feature of the U.K. market for years, and the trend appears to have spread across continental Europe.
Against the challenging economic backdrop, the 468 announced European M&A transactions in 2023 was a 7% downtick from 2022’s record of 503. However, this number is likely low, as many European deals involving small brokerages are not published, making it difficult to include them in total counts. Keep an eye out for these under-the-radar deals, as they may be the key to understanding the “roll-up” playbooks of Europe’s most successful consolidators.

Insurance brokerages are consolidating at all levels, from small local books joining forces to mergers of top-10 brokerages. A stream of domestic businesses is gradually scaling from small to midsize to national champions and finally to pan-European brokerages.

At the same time, international brokerages and investment firms, often based in the United States and with aggressive roll-up strategies, are eager to establish themselves in continental Europe for further expansion.

Private equity is the primary driving force behind insurance brokerage consolidation in Europe, accounting for approximately 60-70% of transactions for firms worth €25 million or more for the last three years.

U.K. M&A Deals Hit New High

M&A volume in the United Kingdom hit a record high in 2023, with 148 announced deals. However, the aggregate deal value fell for the third year in a row, to £3.9 billion, as the average deal size decreased to approximately £6.4 million.

The United Kingdom still has many active consolidators—14 separate buyers acquired three or more targets in 2023—but there is a diminishing supply of the midsize targets that have been the mainstay of most roll-ups. Many of these buyers have been reaching down to do a greater number of smaller deals. The larger U.K. consolidators are having more difficulties doing small deals, and many are increasingly focused on inorganic growth in overseas markets (e.g., PIB, Ardonagh, Howden) and spending more time and money in continental Europe.

Buyers from the United States remain interested in U.K. assets—accounting for 44 of the 148 deals in 2023. While Brown & Brown accounted for 22 of those deals, Acrisure, AssuredPartners and NFP (now part of Aon) were all more active in the United Kingdom during 2023 than ever before.

Private equity interest in U.K. consolidation is becoming more cautious, with more PE exits than new investments in 2023. This reflects the higher funding costs and reduced opportunity relative to continental European markets, which are seeing rapid inflows of PE capital.

Hot Spots for European M&A

As the U.K. market became crowded with international and local buyers, the trend spread to continental Europe. The Dutch brokerage market continues to impress with consistently high deal volume year after year. The market shattered records in 2023 with 66 announced deals, even while the number of available midsize targets slowly decreases. The Dutch market also had some new entrants with the arrival of emerging international brokerages. Ardonagh made a strong debut with two acquisitions, German brokerage Gossler, Gobert & Wolters Group created a Dutch entity, and the British Howden made a big splash with the acquisition of the Dutch market top-10 brokerage VLC.

Belgium has traditionally been a strong brokerage country with many independent intermediaries, and the number of midsize targets is still overwhelming. Britain’s Howden, France’s April Group and Germany’s Ecclesia have already landed in Belgium, and it seems only a matter of time before a number of emerging international brokerages join them.

Germany and France have emerged as the most promising markets for consolidation across continental Europe in coming years. Avenues for international brokerages and investment firms are opening in these large markets with solid growth, a relatively high premium share of brokerages, and many brokerages that are owned by private operators, many of whom are nearing retirement and are likely ready for an exit in the next decade. In fact, 74 deals were announced in Germany alone for 2023, indicating a full-fledged consolidation drive in the country.

Notable Deals in Europe

Howden Group is strengthening its position as one of Europe’s leading brokerages. The company made around a dozen acquisitions in 2023, backed by private equity houses General Atlantic, CDPQ and Hg. Notable acquisitions were Argenius Risk Experts in Switzerland, Meklaritoimisto Helmi in Finland, Northern Lloyd in Germany, WDR Insurance Group in Belgium, North Risk in Denmark, and VLC & Partners in The Netherlands.

Hg Capital announced that it is partially selling GGW, one of the leading German insurance brokerages for small and midsize businesses, to private equity firm Permira. According to the announcement, Permira plans to help GGW to pursue its strategy of acquiring other companies in the German and European insurance brokerage sector. Notable GGW acquisitions in 2023 were Baltic Finance in Denmark, Invest Suisse in Switzerland, Assurever in France, and multiple German brokerages.

+Simple, a KKR-backed wholesale brokerage in France, acquired numerous French brokerages, including Profirst, Carmine and GMBC. After receiving €90 million in growth financing led by the American private equity group, +Simple International has expanded by acquiring Everat Suscripcion in Spain and Crea Assicurazioni in Italy.

Söderberg & Partners, a leading brokerage in Sweden, took in an additional €200 million from minority owner KKR. Following the new share issue, Söderberg & Partners will continue to be controlled by its founders and supported by its two significant minority shareholders, KKR and private equity firm TA Associates. Söderberg has acquired Eijgendaal & van Romondt, DGA Financieel Adviseurs and Dazure in the Netherlands, along with ERSM Insurance Brokerages and Grupo Galilea in Spain.

Projections for Europe in 2024

Mergers and acquisitions this year in the European insurance brokerage market could exceed 2023’s numbers. With stable interest rates, pent-up demand and large amounts of dry powder available at private equity firms, there could be plenty of opportunities for industry consolidation, increased deal leverage, and roll-up strategies. Consolidation will likely also be driven by the industry’s fragmentation and the demands placed on brokerages by regulation, workforce gaps and digitization.
Strong in-country PE-backed platforms and local heroes will increasingly look across borders to build multicountry or even pan-European platforms.

Some of the more leveraged brokerages that achieved strong growth from acquisitions will face unfavorable refinancing as they reevaluate their current debt at higher interest rates. This could force them to reduce expenses to maintain profit margins and expand the focus on organic growth to sustain value creation going forward.
In a dynamic, shifting market, insurance brokerages, strategic buyers and investors do not have the time to sit back and watch the industry transform and consolidate. Robust strategic growth planning, with an eye on M&A, is crucial to pursuing opportunities in this fast-changing environment.

Phil Trem President of Financial Advisory, MarshBerry Read More

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