How to avoid the potholes

What is currently affecting M&A activity in the Bermuda market?

Following a period of settlement, there have been some significant transactions to start off the year. It shows that well developed business platforms and business models will continue to be attractive to those looking to grow strategically in other business lines or geographic regions or simply in increasing market share.

Third party capital remains strong and we see private equity at play in seeking to obtain new types of portfolio assets. These drivers should continue over the course of the year with more interest in M&A from an acquisition perspective rather than a merger of equals.

At the other end of the spectrum, underperforming companies will continue to garner interest as opportunistic acquirers look to find value at deflated prices. Companies challenged in meeting regulatory standards or establishing ever-important critical mass may look to M&A as a solution.

We have also seen consolidation on the fiduciary/administrative services sector as existing groups look to strengthen their global footprint. Traditional factors such as growth, consolidation, opportunism and necessity continue to affect M&A activity in the Bermuda market.

Is there any appetite for M&A at the moment and will that change?

M&A activity, and the appetite for it, remain strong as opportunities continue to present themselves. Fundamental drivers of M&A such as increased market share, new markets or products, reaching industry-accepted critical mass and economies of scale ensure that a base level of appetite and opportunity will continue unabated.

While some companies may enter a period of reflection as they assess the impact of global factors such as US tax reform, Brexit and insurance industry losses, we see this more as a short time out rather than a withdrawal from M&A considerations. This would not be a change in appetite for some but rather a short deferral. However, for the majority, and as evidenced through the first months of 2018, it is business as usual in the M&A market as fundamentals continue to be strong and appetite remains healthy.

What could the M&A deal flow in 2018 be like?

2018 should be a solid year in terms of M&A deal flow. Global factors and concerns appear to be having a nominal impact for the majority in the M&A market as traditional drivers remain strong.

We are seeing quite a few early transactions with interest in more. The insurance industry has, once again, attracted a great deal of interest and talk of new transactions is on the rise as speculation increases.

This could lead to more consolidations as well as transactions in the growing run-off market. Well run companies with healthy balance sheets are seeking new opportunities while an M&A play may be the best result for a board of directors looking to maximise shareholder value. We now expect deal flow in 2018 to exceed that of 2017 with a number of larger transactions and a good volume of medium-sized transactions.

What tips can you give for enabling M&A deals to be completed smoothly?

From a Bermuda perspective, a full and complete understanding of the Bermuda M&A process at a very early stage would greatly assist in getting M&A transactions completed smoothly. With a fundamental understanding as to what is involved in a Bermuda merger or acquisition the parties avoid last-minute potential surprises which can lead to problems and delays in the transaction.

Additionally, a thorough due diligence exercise at the outset of the transaction can identify areas of concern at an early stage which can then be addressed before they begin to negatively impact the transaction. Proactively identifying and locking down steps and issues will allow a deal to proceed with fewer bumps along the way.

Anything that can bring more certainty to a transaction, such as voting agreements, will also allow for a smoother process. The value of engaging local counsel well accustomed to navigating these issues is essential to being able to troubleshoot issues as they arise; they act as facilitators to a successful closing.

Alan Bossin is a partner in the corporate department in Bermuda. He specialises in insurance and reinsurance with a focus on M&A, corporate finance, and private equity and regulatory matters.