The times they are a-changing

BY Richard Summerfield

The insurance industry is changing at an unprecedented level according to a new report from PwC. 'Insurance 2020 and Beyond: Necessity is the mother of reinvention' reviews  developments in the industry set against PwC’s initial projections, and is based on interviews with more than 80 chief executives officers around the world.

The insurance space is at an important crossroads. Going forward, the industry will need to deal with significant changes to customer behaviour and acclimatise to technological advancements and new distribution and business models. More stringent local, regional and global regulatory developments will also contribute to the changing nature of the industry between now and 2020.

The report, which took five years to produce, notes that digital developments in particular have had a significant impact on the insurance space – an impact that is likely to grow over the next five years. Digital developments have helped insurers to enhance their customer profiling, develop sales leads, tailor their financial solutions to individual needs and, for non-life businesses, improve claims assessment and settlement.

Many of the firms surveyed said they have taken steps to improve their digital distribution channels. They have initiated new programs to help integrate their product lines into a client’s life, with pay-as-you-drive applications for smartphones just one example of such integration.

Going forward companies will be required to utilise ever more sophisticated sensors, big data analytics and communicating networks as the much lauded ‘Internet of Things’ becomes more commonplace. Jamie Yoder, PwC Global Insurance Advisory Leader, notes, “The emerging game changer is the change in analytics, from descriptive (what happened) and diagnostic (why it happened) analysis to predictive (what is likely to happen) and prescriptive (determining and ensuring the right outcome).”

Report: Insurance 2020 and beyond: Necessity is the mother of reinvention

M&A activity in power and utilities sector hits four-year Q1 high

BY Fraser Tennant

Mergers and acquisitions (M&A) activity within the power and utilities (P&U) sector propelled Q1 deal value and volumes to a four-year high, according to a new EY report.

The first quarter data showcased in EY’s ‘Power transactions and trends 2015’ reveals that total deal value reached US$29.7bn, deal value in Europe (the leading Q1 M&A destination) was US$11.4bn, and the total Q1 deal volume was 101 – all pointers to yet another strong year for M&A in the P&U sector.

The demonstrably burgeoning level of M&A activity seen across the globe is partly due, says EY, to energy reforms and unbundling (ERU) – an emerging trend involving governments opening up their energy sectors to competition. Indeed, ERU has recently been introduced in China and Japan, with both territories initiating reforms designed to break the dominance of state-owned monopolies.   

“We expect to see more deals involving consortiums as utilities and financial investors recognise the opportunities for collaboration," confirms Matt Rennie, EY’s global TAS power & utilities leader. “Conventional P&U companies are expected to focus on new areas of growth such as evolving technologies, energy services and fuel supplies.”

The EY report also states that: (i) during Q1, US utilities turned to consolidation to meet the challenges of a stringent regulatory environment, weak earnings growth and declining returns on equity; (ii) in Europe, utilities continued to sell assets – mostly to financial investors – as they prioritised core business; (iii) Asia-Pacific deal activity was dominated by Chinese utilities, which are looking to consolidate to secure greater market share in the domestic market; and (iv) in Africa, a lack of local funding sources created opportunities for foreign investors to take a prominent role in financing power projects, as governments made moves to ease risks for investors.

“As the year progresses, we expect to see a rise in the number of deals involving consortiums as utilities and financial investors recognise the opportunities for collaboration," continues Mr Rennie. “Given a weak growth outlook in key regions, conventional P&U companies will focus on new areas of growth such as evolving technologies, energy services and fuel supplies.”

Report: Q1 2015 Power transactions and trends

M&A likely in oil & gas space

BY Richard Summerfield               

Over half of the companies operating in the oil & gas sector are contemplating acquisitions in the coming 12 months, according to a new report from EY.

The report – EY’s 'Oil and Gas Capital Confidence Barometer' – which surveyed 112 oil & gas company executives, notes that the industry is in the process of rebounding from the adverse effects of the recent sharp decline in oil prices. As a result, 56 percent of surveyed firms believe they will “actively pursue acquisitions” over the next 12 months – more than double the number of executives who responded similarly in October 2014.

"For the first time in five years, more than half our respondents are planning acquisitions in the next 12 months, as deal pipelines continue to expand," said EY global vice chair for transaction advisory services Pip McCrostie. However, despite the recent acquisition of BG Group by Royal Dutch Shell, the main focus for acquiring companies will not be big ticket mega-mergers. Indeed, most acquiring companies – 70 percent of respondents – are likely to focus on mid-market transactions, with the majority of deals expected to be pitched at around $250m. A further 24 percent of surveyed firms are planning acquisitions of between $251m and $1bn, while just 4 percent of companies are believed to be considering deals worth in excess of $1bn.

The survey was conducted in February and March when Brent crude price averaged below $60 per barrel; accordingly, many of those executives surveyed felt that an improvement in the oil & gas space was inevitable. Ninety-nine percent of respondents felt that the overall deal market would improve or remain stable over the next 12 months. A further 97 percent expressed similar confidence in the global economy.

Despite the resurgence of confidence in the oil & gas sector’s deal environment, residual macroeconomic concerns may still curtail some M&A activity. Increasing volatility in commodities and currencies, as well as persistent disruptive geopolitical influences, cast a potential shadow over future deal activity.  In order to mitigate these risks, firms in the oil & gas space will attempt to cut costs and achieve synergies while continuing to look for opportunistic acquisitions.

Report: Oil and Gas Capital Confidence Barometer

M&A booms in Q1 2015

BY Richard Summerfield

2014 was a notable year for global mergers and acquisitions (M&A) activity, with deal volumes and valuations reaching pre-crisis highs in some regions. This  boom continued into the first quarter of the year, according to data released by Dealogic.

In the first three months of 2015, $902.2bn worth of M&A activity was announced - the highest first quarter total since the $1.08 trillion worth of deals announced eight years ago.

The 14 megadeals – each valued in excess of $10bn – accounted for a significant amount of  announced transactions in Q1, worth a combined $267.4bn. It was the busiest Q1 for megadeals since  15 deals were announced in the first quarter of 2006.

Cross-border M&A also performed well, reaching $315.2bn - the highest first quarter volume since 2007 when activity reached $357.9bn.

The healthcare sector was the most targeted industry, with deal value of $126.5bn. The real estate space was the second most targeted industry last year with $113bn worth of announced deals  across 462 transactions, a leap of 38 percent from Q1 last year.

US targeted M&A climbed 28 percent, with a total of $415bn, up from $324.6bn. This was the highest first quarter total since 2007 when $430.7bn worth of deals were announced.

In Europe, seven of the region’s top 10 sectors saw a year on year increases in volume in the first quarter. In the construction sector, activity climbed to $11.7bn - a more than threefold increase on Q1 2014, which saw just $3.2bn worth of deals.

Report: Dealogic Global M&A Review First Quarter 2015

Social and economic changes “disrupt” global real estate fund sector and spark clamour for new investment

BY Fraser Tennant

The global real estate fund sector is currently experiencing a period of “disruption” with major social and economic changes sparking a clamour for new investment, according to a new EY report.

EY’s ‘Global market outlook 2015: trends in real estate private equity’ found that M&A deals in particular are continuing to surge, a scenario that is being driven by three main factors: (i) a desire for incremental growth; (ii) the strategic merit of transactions; and (iii) the availability of debt and equity on favourable terms.

As a consequence of this increasing demand for new investments, prices have skyrocketed, leading to the possibility of M&A dealmaking activity in 2015 exceeding the peak levels of 2007.

In the US, the real estate market is currently awash with cross-border capital due to the country’s faster than most economic recovery; however, the immense popularity of this particular asset class has raised the spectre of a bubble similar to the one that enveloped Japanese investment in the US back in the 1980s.

Despite this, analysts such as Mark Grinis, EY’s global real estate fund services leader, are relatively relaxed about the perceived threats.

“If we look at history, market collapses have always been preceded by deteriorating economic fundamentals and stress factors like overdevelopment and rising vacancy rates," said Mr Grinis. “So far, there is little evidence of these precursors. What's more, industry players have moved carefully along the risk spectrum, which is why we have not seen an excessive amount of development or movement in markets that lack significant economic drivers.”

Elsewhere in the report, significant changes to the way private equity funds are administered are highlighted, with outsourced administration platforms shown to be particularly popular. And in terms of regulation, the report flags up the increasing scrutiny being directed toward the global real estate fund sector by the likes of the European Securities and Markets Authority (ESMA) and the Organisation for Economic Co-operation and Development (OECD).

The EY report is based on a series of interviews with more than 20 of EY’s global fund partners in the US, UK, Europe and Asia.

Report: Global market outlook 2015 - Trends in real estate private equity