The European Commission recently approved the merger between French mutual insurance giant Covéa and PartnerRe, a reinsurance company owned by the Italian group Exor. The agreement, which was concluded in December for a reported €7.8 billion, represents an astute investment as it enabled the French firm to acquire PartnerRe for only 1.28 times its book value. The acquisition is, however, not the only deal that Covéa recently, as Italy’s third-largest bank, Banco BPM, exercised its option to buy back Covéa’s shares in a joint life insurance venture for €310 million.

Covéa’s recent moves are especially interesting as they highlight two emerging market trends. The first is the expansion of the reinsurance market, which is currently witnessing a post-pandemic resurgence and is likely to grow rapidly due to the effects of climate change. The second, meanwhile, is the growing cross-border trade in the form of mergers and acquisitions (M&A) between Italian and French firms. Both these trends are likely here to stay and are definitely worth keeping an eye on for European investors.

A reinsurance recovery

 In announcing its recent deals, Covéa made clear its intention to concentrate its international activities on the reinsurance sector. Such a decision is hardly surprising, seen as the global reinsurance market is a well-capitalised and growing market: endowed with an estimated $534 billion in dedicated capital,  and an expected compound annual growth rate of 3.3% over the next four years.

The industry faced significant challenges during COVID-19 but it was precisely this period that demonstrated how crucial the sector is to the global economy. Analysts at EY predict that the global reinsurance industry is poised for “a period of purposeful growth”. Moreover, the role of reinsurers will likely become more important as unpredictable events and natural disasters become more common. German reinsurer Munich Re, for instance, has already said that climate related fears are driving up demand for disaster insurance, while demand for climate risk insurance is reaching similar heights.

A growing transalpine M&A market

The two deals recently concluded by Covéa also shine a light on the growing number of Italian and French firms that have shown an appetite for opportunities across the border and especially in concluding mergers or takeovers.

Globally, M&A activity surged last year, with more than 62,000 deals announced, including 130 megadeals worth $5 billion or more. The value of disclosed deals reached a record of $5.1 trillion, beating the previous record set in 2007. The global upward trend in M&A has also been reflected in the Italian market. In the final quarter of 2020 alone, around 206 M&A deals were completed in the country – the strongest Italian quarter by volume on record. And activity is not slowing down: the first half of 2021 saw 294 transactions worth €47.5bn being inked, a 32% rise compared to the same period in 2020, and the highest half-year deal value since 2007.

According to PwC, between 2018 and 2020, Italian firms acquired nearly 500 international companies, of which 66 were in the US and 25 were in France. The big-name French purchases include footwear specialist Roger Vivier for €425m, coffee company Carte Noir for €700m and Marnier-Lapostelle, which produces Grand Marnier liqueur, for €625m. In fact, over the last two years the French and Italian firms have inked at least 165 deals totalling around €17 billion with each other. And despite the big-name Italian purchases, the majority – around €13.3 billion – of these deals have actually been French firms or funds purchasing Italian targets.

More to come

 The number of investments between Italy and France is also likely to increase due to their growing attractiveness as foreign investment destinations. According to a report by EY, France remains the most competitive and attractive country in Europe to foreign investors. Italy, on the other hand, has traditionally been less successful at attracting foreign investment. However, the country is now taking significant steps to increase its attractiveness to investors through the largest package of public spending reforms since World War II, including €205bn in investment from the NextGenerationEU recovery plan to be spent over the next five years.

It should come as no surprise, therefore, that other major M&A deals involving firms from both countries are rumoured to be in the pipeline, such as that between Tim and Apax-Illiad. As a result of their improved attractiveness to foreign investment, we should therefore expect the close collaboration that we are witnessing between Italian and French firms to continue in the coming years.

The recent Covéa deals may just be the sign of things to come, then, signalling big changes ahead for both the reinsurance industry and for renewed M&A growth in Europe, and between France and Italy in particular. After years of pandemic-induced slowdown, it is beginning to look as if parts of Europe have thrown open the doors and windows and emerged into the sun, blinking and bright-eyed.