In 2019, M&A defied a plethora of pessimistic predictions. Commentators announced that geopolitical uncertainty, trade tensions between the US and China and volatile capital markets would put the brakes on a decade-long run of deal making success. However, the market, once again, proved the doubters wrong.
As transactions grew, M&A insurance pursued the same upward trajectory. Demand from Aon’s clients for deal-related solutions again showed year-on-year growth. The number of representations & warranties (R&W, also called warranty & indemnity, or W&I) policies Aon placed in 2019 increased by 18%. Expectations for 2020 were high – our survey revealed that respondents expected increases across all types of M&A insurance. And then COVID-19 hit. By early March, the pandemic was wreaking havoc across the globe, inflicting human tragedy and loss while also stalling deal markets as lockdowns took effect in all regions.
However, in the first half of 2020, despite a significant slowdown (Q1 saw a 25% fall in volume from the same period last year), deals continued to complete and, as countries and businesses begin to return from lockdown, the market could well pick up pace as we enter the second half of the year. “Buying opportunities still exist,” said Matthew Heinz, Co-Practice Leader in Aon’s Transaction Solutions Practice. “But a higher risk tolerance will be needed as buyers become less certain of valuations. With all the dry powder on hand, there nonetheless could be a feeding frenzy.” The demand for M&A insurance should once again follow suit.
In our exclusive survey of global insurers and managing general underwriters, we found that 79% predict an increase in R&W insurance, 63% anticipate litigation and contingency to rise, and 88% feel that tax insurance will grow. While these figures emerged before the outbreak of COVID-19, M&A insurance has become such a staple of the industry that the percentage of penetration in the deal market should remain high even if the actual number of transactions stagnates.
The market in H2 2020 and into 2021 will likely be characterized by distressed deals – M&A insurance will become an increasingly powerful pillar in facilitating these deals. Meanwhile the surge in tax and litigation and contingency insurance on both distressed and “regular way” M&A deals is likely to continue, as these are not as inextricably linked to the broader M&A market and are increasingly recognised as strategic capital management tools that can solidify financials and unlock liquidity.
In this report, we take an in-depth look at how industry insiders see the market for transaction products developing in the next year. The coverage includes exclusive data exploring regional, deal size and sectoral variations as well as insights on claims, a potential hardening market and premiums, positions and policies. We are also delighted to have on-the-record interviews with five notable industry professionals who discuss a wide variety of subjects from the effect of COVID-19 to the impact of technology on the industry.