“These two things combined created a perfect storm to send valuations higher, which would encourage many business owners to sell and have relatively cheap financing to do so. So it was actually a very demonstrably active market.”
Aon believes last year’s resurgence in M&A activity could continue to some extent in 2022, albeit at record levels not seen in 2021. Dealmakers today face new forms of volatility including Russia’s invasion of Ukraine, inflation and geopolitical uncertainty on inflation. Possible gridlock, rising interest rate environment, changing tax and regulatory landscape, rapid acceleration of the digital economy and a very complex cyber risk landscape.
“A lot has changed very quickly. People talk about different headwinds in the market, but I think the biggest headwind is the volatility that all of these events bring,” Blitz told Insurance Business. . “For an M&A deal to go through you need a buyer and a seller who are reasonably certain that the agreed purchase price is the right one – but when things are moving too fast, positive or negative, it is very difficult to negotiate.
“Not this M&A activity [significantly drops] when we enter a recession or when interest rates change or even when there is inflation; What the market needs is a sense of stability for people to be able to do these trades.”
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What does the current volatility mean for M&A activity in 2022? Blitz thinks it’s going to be “a different year with different deals.” AON’s M&A Risk in Review report, which focused on Q1 22, showed a particularly strong outlook for M&A in sectors such as technology, media and telecoms (TMT), while dealmakers in energy, mining and utilities (EMUs) were more skeptical about the possibilities were . Place.
However, Blitz pointed out, “There was little interest in Q4 21 and Q1 22 in terms of the EMU space, but fast-forward a few months and now we have an energy industry that’s going to restructure everyone because of the problems.” Ripe comes from the war in Ukraine. So I think we’re going to see a lot of deal activity there and some distressed deals.”
Multiple insurance solutions – like agent and warranty (R&W) insurance, tax liability insurance, intellectual property insurance and more – as well as ways for dealmakers to protect themselves from market volatility, including a greater focus on due diligence Huh.
“During very busy, hectic times, dealmakers don’t always think about insurance solutions, but the best thing you can do is take the potential risk off the table,” Blitz said. “An increased focus on due diligence is also important, be it in relation to human capital issues, regulation, environmental, social and governance (ESG) issues or cyber. In this environment, there is simply less room for error. The more homework you can do and the more risk you can offload to third parties, the more likely a deal will be successful.
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R&W insurance is intended to cover undisclosed and inadvertent breaches of warranties and warranties in M&A agreements. The market has grown with the explosion in dealmaking, with Blitz believing R&W insurance “has become the norm in private M&A deals.”
“People buy R&W insurance because it allows for more financially efficient transactions where the seller can earn more income when closing, rather than leaving money in escrow. This is important in this economic climate. Because their returns are under more pressure – and the buyer may still be protected by insurance,” he explained.
“I think what we’re going to see in this phase of volatility is buying larger limits on a single trade as a buyer may be more risk averse than at other times, as well as a greater focus on breadth of coverage. This is also good for R&W insurers as buyers and their advisors are more willing to delve deeper into due diligence, so I think insurers would benefit from this perspective.
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