SA’s insurance industry sees uptick in M&A, with continued deal activity

Source: Pexels

However, continued macroeconomic weakness, political uncertainty for those facing uncertain election outcomes, and unresolved global tensions continue to present challenges for investment and mergers and acquisitions (M&A) activity.

While turbulence and uncertainty are often not ideal, in this scenario, it helps to reinforce the requirement and opportunity for many industries and operators to adapt to better respond to these challenges. This can be done through continued strategic agility, operational enhancements and M&A activity.

The first half of 2024 saw a measured uptick in deal-making across the insurance industry—both globally and in South Africa.

Standard Bank Top Women Conference 2024: The event for networking, inspiration and professional growth

Topco Media  16 Oct 2024

Morgan Jones, PwC deals and corporate finance partner, says: “The insurance industry is one such industry where we have seen organisations rapidly adapt to meet changing customer needs while focusing on delivering growth and profitability.

"This speaks to the determination that organisations have to grow and diversify their operations in order to remain resilient and competitive, and drive investor returns.”

Jones says that the need to focus on growth and returns is continuing to trigger M&A activity across the industry, which is being spurred on by a number of key deal drivers relating to access, diversification, consolidation and innovation. These are outlined in more detail below:

1. Access to distribution channels and customers

A key avenue for growth in the insurance industry consists of access to the right distribution channels that are aligned to your strategic plans. Distribution that focuses on new channels for customer acquisition and customer engagement can fast-track relevancy and reach in markets, adding scale and new growth opportunities supported by seamless omnichannel engagement.

2. Diversification into new products and market segments

Increasing competition in insurers' traditional segments is enhancing the need for diversification in pursuit of new areas of growth. Addressing new customer segments and expanding product sets can deliver greater growth, as well as the ability to achieve scale and reach in these areas—which can be fast tracked through M&A.

3. Consolidation and economies of scale

In a lower growth environment, where cost management and return on investment remain key, acquisitions for consolidation and economies of scale are an obvious opportunity for insurers to enhance top- and bottom-line performance.

While the concept of acquiring goodwill remains challenging, the ability to extract synergies and drive value from such transactions can deliver material benefits if properly considered and executed.

4. Continued innovation, technology and “transacting-to-transform”

“Insurance, like many other areas of financial services, has seen its fair share of new entrants and disruption,” Jones says. “Yet the core proposition of insurers—customer reach, value, relevancy and experience, combined with fit-for-purpose products—remains.”

We are also observing the insurtech landscape maturing and valuations stabilising, especially given the capital exit being experienced by the sector. This means that operators are well positioned to consider whether M&A in this area can support operational and product-technology enhancements.

PwC’s 4 key elements for digital campaigns to hit the mark

Charles Stuart  5 Sep 2024

Jennifer Chetty-Feinberg, PwC South Africa corporate finance and M&A partner, says: “While the above mentioned trends continue to drive deal-making activity within the insurance sector, it has never been more important to underpin M&A with a clear set of principles and an in-depth assessment of strategy, targets and deal-execution capabilities.”

There are several fundamentals that guide this process and they include: defining your strategy and developing a deep understanding of it, preparing for effective diligence by understanding your internal capabilities, and establishing a value-creation plan bridging pre- and post-deal positions to gain a better understanding of the value-drivers within the business that can be developed.

The value and power of data-driven insights into businesses, especially in insurance, is being constantly demonstrated and enhanced with new approaches to diligence in the sector.

Combining this with clarity on investment rationale and deal-making considerations can deliver greater confidence in structuring and pricing the right deal.

Alsue du Preez, PwC Africa insurance leader, says: “Insurance remains a vibrant industry, demonstrating growth and innovation across the value chain—whether in the face of or driven by an ever-evolving regulatory, accounting and operational backdrop.

"While organic strategies for value creation remain critical, the industry consistently demonstrates the opportunity that well-considered and executed M&A can deliver to operators.”