Finance

Insurers take a chance on Mena’s merger market

October 26, 2023, 3:55 AM

M&A insurance can protect businesses if the deal they've signed goes wrong — When businesses sign a merger, a warranty and indemnity policy can protect them from an unforeseeable risk

Demand for M&A insurance grows
Brokers and underwriters set up in Dubai
Warranty and indemnity cover popular

The Middle East and North Africa is a hotspot for mergers and acquisitions in a tricky global market – which also makes it fertile territory for insurance companies that offer protection if deals go wrong.

“A couple of years ago, trying to get a UAE deal insured would have been fairly difficult. Now a UAE asset is just very par for the course,” Munal Mehta, head of Middle East and Africa at broker HWF Partners, told AGBI.

“Insurers are starting to get more comfortable generally with this region.”

Today about 10 insurance companies are actively underwriting M&A deals in the region, she said. Five or more of them have personnel focused on the Middle East and Africa, including Euclid, AIG, Mosaic, Liberty and WRB.

HWF, an M&A broker with an office in Dubai, advised on 55 deals in the region between 2020 and 2022. Those transactions had a combined aggregate value in excess of $20 billion. Six of the deals were valued at more than $1 billion. Clients include sovereign wealth funds, family offices and corporations.

Mehta said it did “a lot of work” with the sovereigns in the region and that it sees “huge untapped potential”.

“We estimate that less than 15 percent of MEA deals are benefiting from insurance,” she added.

Protection from the unknown

Many of the M&A policies placed in the region are warranty and indemnity (W&I) cover, which protect a company from risks that were unknown and unforeseeable when it made the deal.

This growing appetite is down to greater awareness among GCC investors, particularly the wealth funds that are snapping up assets in international markets where W&I insurance is required.

“Companies in the region are no longer asking us what W&I is," Sam Whiteman, head of international, transactional liability at Mosaic, told AGBI. "The question now is how they can use it.”

Mosaic opened its Dubai office in January this year, staffed with three specialist underwriters.

Last year, it received around 70 submissions for W&I/M&A insurance from across the Mena region, according to Whiteman. So far in 2023, it has around 65, but it expects this to climb to 80 by the end of the year.

“The vast majority of the deals we've insured are for the very well-known sovereign wealth funds in Dubai principally, but also Abu Dhabi,” he added.

Mosaic has advised on a handful of deals in Egypt too. Whiteman believes Saudi Arabia offers the greatest growth prospects, “but Dubai is by no means at full potential yet.”

HWF also expects Saudi Arabia to play "a more prominent role in the future”, Mehta said.

The broker has "done a few deals now in Egypt" and is also working on projects in Uganda, Tunisia and Morocco.

In the UAE, “a lot of African and pan-African deals" are "lawyered or brokered from here. There’s a considerable number of fintech and payment wallet solutions’ deals, as well as e-commerce,” she added.

The sectors growing fast

HWF's book of business in the Middle East and Africa includes fast-moving consumer goods, agriculture, healthcare, tech and e-commerce.

“There’s also a couple of very big international school groups that we work with who have been acquiring schools in the UAE, Kuwait and Oman,” Mehta said.

For Mosaic, deals were previously concentrated in healthcare and education, but the number of requests from the tech and retail sectors are growing.

“A lot of the brokerage firms have started placing teams of brokers on the ground,” said Whiteman.

“It’s almost inevitable that the use of the product and the number of deals will increase when more brokers have an established presence.”