Europe’s insurance market looks like a patchwork quilt, with hundreds of thousands of small brokers spread across different regions and countries.

However, the combination of predictable cashflow, plus lightly regulated financial services, has attracted the interest of investors. As a result, the industry has begun to consolidate, with the process of making it less colourful and more durable likely to continue for the foreseeable future.

There are two layers to the process, according to Freshfields Partner Wessel Heukamp, who is the global head of the firm’s insurance group. On the one hand, mid-cap funds are rolling up brokers alongside consolidation between smaller players.

On the other hand, larger private equity (PE) firms are also looking at platform plays, he said.

One example at the beginning of March was the merger of Belgium-based insurance brokers Induver and Clover, with investment fund HgCapital acquiring a stake in the combined company, as reported. Aspirations to “turbocharge” the combined businesses, which are seen as complementary, lay behind the deal.

Deals involving European insurance brokers began to boom in 2018, when there were 150 deals worth EUR 7.2bn, according to Mergermarket data. The record year since then has been 2021, with EUR 9.9bn spread over 196 deals.

There were 209 deals worth EUR 3.9bn in 2023, down slightly from 191 transactions worth EUR 4.6bn the previous year. The year to date has already yielded 33 deals worth almost EUR 80m in total.

IT synergies drive trend

A recent report from MarshBerry estimated that there are more than 900,000 intermediaries in the European insurance market. Around half are tied agents, while 13% are brokers and 37% cannot be clearly defined. Almost 80% are very small.

Many of the smaller deals are driven by the need for synergies, particularly for information technology (IT) platforms, Freshfields’ Heukamp said.

On the larger side of the equation, there was at least one mega-deal in the sector last year. In September, Markerstudy Group, a UK-based general insurance provider, announced a deal to buy Atlanta, the retail insurance arm of insurance broker Ardonagh Group for GBP 1.2bn (EUR 1.4bn), as reported. The combination of brands is expected to position the merged entity as a major player in UK insurance.

Meanwhile, insurtechs – new entrants to insurance that leverage tech to gain an edge – have also attracted the attention of PEs, as reported by Dealspeak EMEA in 2022

Back to black

Looking ahead, Mergermarket‘s Likely to Exit (LTE) predictive algorithm shows a strong pipeline of larger deals in the sector for this year*. There are five sponsor-backed insurance players with scores of more than 50 out of 100.

Dutch insurance broker You Sure Investments leads the list, with a score of 64. Its sponsor, IK Partners, hired Houlihan Lokey, as reported in September.

Meanwhile, French broker Entoria, which has a score of 60, is already in the market, as reported. Also in France, Eurazeo, Montefiore and Blackstone’s broker Groupe Premium has a score of 59. Montefiore is setting up a continuation fund for the asset, as reported.

On the buyside, HGCapital isn’t the only PE firm seeking consolidation. Firms like Cinven, KKR [NYSE:KKR] and Warburg Pincus have all been active in the space.

Dealmakers can expect to have fun making the multi-coloured European insurance broker market more monochrome in the months and years ahead.

*Mergermarket’s LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.