5 Things That Can Smooth The Way For Middle East Insurance M&A Deals

Why is Insurance M&A activity hotting up in the Middle East market and how might companies active in the region need to be ready to move if divestment or acquisition fits their strategic agenda?

It's only relatively recently that M&A activity has become a feature of the Middle East insurance market, in the same way that it is a cornerstone of longer-established geographic markets.

Drivers of the increase in activity within the region vary.

In some cases, they are the same as anywhere else - to free up or direct capital towards businesses or segments with the best anticipated sources of value and returns. A particular feature of the Middle East market though is the number of local companies that have struggled with scale and solvency, resulting in regulators effectively mandating sales. For example, in the United Arab Emirates in 2021, around 20 of the more than 60 insurers in the market were technically insolvent. And allied to that, we have seen some cases of overseas parent companies deciding to exit the market or divest certain regional businesses.

Five things to consider

In a recent podcast in our (Re)thinking Insurance series, our M&A specialists reflected on what the increase in M&A opportunities within the region may mean for the capabilities needed to pursue them. Among those, they highlighted five.

01

Market knowledge and awareness

Like all markets, M&A activity experiences rises and falls in the levels of interest for certain types of business. Keep an eye on the market yourself or through advisors, including prices achieved for similar transactions and the potential for competitive bidding, so that you can assess whether it's potentially a good time to sell or buy.

02

Determining the true market value of the business up for sale

Most of the technical business valuation methods employed in insurance boil down to the levels of future dividends or payout to the shareholders and they require understanding and rigour. An important aspect of valuation that can get overlooked in these is value of intangibles as well as tangibles, such as goodwill and intellectual capital.

An important point to note on the sell side is that a good way to maximise the sale value may be a preparatory phase in which you make adjustments to the business, maybe through reducing expenses or changing reinsurance strategy, to make it as attractive as possible to buyers. A good sale information pack is also a good way to reduce uncertainty for potential buyers and potentially positively influence the sale process.

03

Assembling the right team

Teams working on M&A need a mixture of both people who know the business and the market really well, and also specialists who know how these processes work, how to interface with bidders and how to build those types of relationships. Regardless of whether all or some of that expertise is coming from external sources, you need an inner circle of people within the business who are equipped to offer the requisite level of support to make the process run smoothly and who can handle the questions that inevitably arise and need answering quickly and effectively.

04

Understanding timescales

A common query is "how long will a transaction take?". The not so helpful answer is, it depends, particularly on the complexity of a deal. Excluding a preparatory phase, and assuming a relatively smooth process, most transactions should probably take six to nine months. But, that's not to say that some deals will not take longer because of the complexities involved or some specific issues that arise during the negotiations and deal process.

05

Mastering the people aspects of deals

There are two sides to this point. Firstly, because of the need for confidentiality in most deal situations, there will typically be a small number of employees involved in working on the transaction. Because, at times, deal process workloads and timescales can become very onerous, it is important to support them to avoid bottlenecks and high stress levels, particularly in smaller organisations that are less likely to have in-house M&A specialists.

The second is when the deal is done and employees are perhaps uncertain about their jobs or whether they are going to feel comfortable in the new organisation. Communication is key because so many mergers and acquisitions fall down not on the business fundamentals, but on the people and integration issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.