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M&A transaction insurance sees rapid growth in Asia-Pacific

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  • Topics:
    • Emerging Markets
    • Mergers & Acquisitions

Rising cross-border activity and heightened risks lead to expanded use of transaction insurance in the Asia-Pacific M&A market...

Aon and Mergermarket have jointly released the Asia-Pacific M&A and Transaction Solutions Risk in Review 2019 report. Findings from the report show that after years of steady growth in transaction volume and cross-border deals, the deal environment in Asia-Pacific is becoming more fully integrated with Western markets.

In 2018, Asia M&A activity slightly increased to 3,905 deals worth $678 billion, up from 3,836 deals worth $675 billion in 2017. In Australia and New Zealand in 2018, M&A activity increased to 754 deals worth $96 billion, up from 731 deals worth $88 billion in 2017.

“We’ve seen the demand for warranty & indemnity (also referred to as representations & warranties), tax, and litigation insurances, and other contingent insurance solutions rise as truly global tools that bring buyers and sellers together to successfully close deals,” said Brian Cochrane, Executive Chairman of Aon’s global M&A and Transaction Solutions practice. “As uptake increases, so has competition among W&I providers, which has benefitted clients as premium pricing is down and insurers are growing more comfortable in providing coverage.”

Report survey key findings:

  • In 2018, Asian companies became more active in acquiring businesses in Europe and the U.S., and in participating in auctions involving larger companies.
  • The Asian deal market is projected to continue on a growth trajectory, despite concerns around the impact of a U.S. trade war with China and the expectation that the economic cycle may be peaking. Forty-four percent of respondents to the dealmaker survey said they expect the number of Asia-Pacific deals to increase significantly (by more than 5 percent) over the coming year.
  • There were only four insurers covering the Asian market in 2014, of which only two were based in Asia. In 2019, Aon has seen an increase to more than 20 insurers with appetite to underwrite Asian risks and by June, there will be at least five insurers with underwriters physically based in the region.
  • The W&I product is gaining traction across deals of all sizes. The average deal size in 2018 was $305 million and at least 60 percent of transactions involved targets exceeding $100 million in enterprise value. In 2018, Aon placed W&I insurance policies for transactions ranging from a deal size of $12 million to mega-deals worth up to $2 billion. The average limit placed was $54 million.

About the Risk in Review 2019: Asia-Pacific report

This report – which forms part of a four-part series covering M&A risk and insurance trends in North America, Asia-Pacific and EMEA, as well as a comparative global round-up at the end of 2019 – takes an in-depth look at the uptake and use of transaction insurance products in Asia and Australasia. The study includes analysis of data on how M&A insurance is being used, as well as a survey of corporates, private equity firms and M&A advisors that explores their insights into the risks and opportunities presented by the deal market in Asia-Pacific.