Private equity-backed financial services M&A continues to shatter records and the insurance industry’s contribution to the trend is no exception. Through August 20th, financial sponsors have acquired $19.3 billion worth of insurers. That figure already dwarfs the $12.9 billion full year total of 2020, and represents the highest deal value on the books for a decade, according to S&P Global Market Intelligence.
The catalysts for consolidation are manifold. Financial sponsors’ search for pools of capital to fuel long term acquisitions has created a new market for life insurance vehicles that can sit on the balance sheet. Apollo Global Management’s buyout of the outstanding stake in Athene Holding, is one such deal, and stands out as the largest PE insurance acquisition year to date at $11 billion.
The idea is not new, but the rate of adoption is. And Credit Suisse analysts say it’s accelerating. We are approaching a tipping point where the composition of the largest private equity players’ fee-related earnings (FRE) derived from perpetual capital vehicles is so substantial it can offset the periodic FRE declines between flagship fundraises. The analysts note that Blackstone’s increasing share of permanent capital-derived fee revenue has several upsides: “high management fees (which also compound with appreciation), superior incremental operating margins, no net redemption risk and robust client demand given [Blackstone]’s strong brand/track record.”
Low interest rates also make life insurers potentially eager sellers. In January, Blackstone acquired Allstate Life Insurance for $3 billion in the sector’s second largest PE-backed deal. Equally active, CVC Capital acquired MedRisk from the Carlyle Group for $1.2 billion in February, and Greek Ethniki Hellenic General Insurance for $594 million in March.
Insurance deals continue to play a role buoying financials services M&A.