GILES MURPHY: Yeah, well, I'm smiling, Deborah, only because it makes a bit of a change to be able to talk more positively about the M&A market in comparison to the previous year or so. But no, in short, we've seen a material uptick in M&A activity over the last quarter. It's by no means at sort of all-time highs or anything like that, but I think there's every reason to be cautiously optimistic for 2024.
DEBORAH SAYNOR: And why is that?
GILES MURPHY: Yeah, so why? I think, simply put, there's just been two to three quarters of broader economic stability, which I think, demonstrated by that persistent increasing and hikes in interest rates over 2023, seems to have stabilized, and people are now talking about possible rate cuts coming towards the back end of 2024. I think the inflationary pressures have eased and are continuing to across the majority of economies. And I think thirdly and lastly, there has been-- or sufficient time has probably elapsed now to almost reset that buyer-seller expectation over deal price and deal value.
So what does that mean? Well, I mean fundamentally, all of that together has just fueled confidence from an M&A perspective. And I think we're seeing year-on-year increases, by way of inquiries, probably north of 20%. We're seeing a return to the market of financial sponsors and private equity, which are the main driver in our market. And so I think there's every reason to be, as I said, cautiously optimistic for 2024 but with the acknowledgment and the caveat that things are finely balanced.
DEBORAH SAYNOR: OK, caveat noted, but I think our FINMAR insurers will be very pleased to hear this, a lot of positivity around the M&A market at the moment. How are these trends influencing the solutions and services that you and your team are providing?
GILES MURPHY: Yeah, that's a great question, and I think in order to try to answer it, you've got to put yourself into the shoes of, if you like, the deal teams or the clients themselves. I mean, it's great that they've got a fuller whip list, a pipeline of investment opportunities. It's great that they're wanting to do deals. But at the same time in the context of a lackluster 2023, there is only going to be increased scrutiny and pressure put on those deal teams in order to get those transactions across the line. I mean, from our perspective, they are going to need to move increasingly quickly and creatively in order to win out in a competitive process.
But on the plus side, that really plays to our strengths at WTW across our core verticals. So clients are only going to need to do more in-depth due diligence. Clients are only going to want access to or increasing access to the availability of transactional risk products, which are very keenly priced at the minute, whether that be warranty and indemnity insurance, standalone tax cover, or contingent risk insurance solutions, which gives us as a broker a tremendous opportunity to really generate meaningful value around managing risk across a transaction.
That really is the magic sauce for us. Any situation where we are able to remove a risk issue off the negotiating table between buyer and seller and help get that deal to close is meaningful for us and where we add most value.
So with these deals only increasing in complexity and size-- I mean, they're frequently multi-jurisdictional, frequently cross-border. Clients that are choosing to navigate those types of deals are going to need a partner who's got sufficient resource and ability to execute globally.
DEBORAH SAYNOR: And that's us.
GILES MURPHY: That is.
DEBORAH SAYNOR: And given that context, what have you seen from the insurance market in terms of a reaction and particularly our FINMAR insurers?
GILES MURPHY: Well, on that one, look, more to come. More detail to come shortly with the soon to be published or our soon to be published annual global transactional risk review. Unashamed plug there. But there is a lot more detail to be found in that report.
But at a general level, I mean pricingwise, we are seeing that it is extremely competitive, and that's mainly driven by two factors. I think the lackluster 2023 by way of M&A activity meant that a number of markets had undeployed capacity. So first up, they're looking to put that to work.
I think secondly, if you marry that with the additional capital that continues to flow into the M&A insurance market-- I mean, for example, we're expecting potentially four new entrants in 2024. There's a continuing downward pressure on rates.
Coveragewise, insureds are continuing to attain an extremely advantageous coverage position. Insurers are having to be extremely commercial, and even more specifically from a FINMAR perspective, we are frequently seeing situations where FINMAR insurers are willing to cede on certain points in order to find the right solution for clients.
So overall, it's an extremely competitive market, and it's insured friendly. And I don't see any reason in the short term, at any rate, why that's going to change in a hurry.
DEBORAH SAYNOR: Thank you very much, Giles. It certainly sounds like a positive story, even with the caveats.
GILES MURPHY: Thank you, Deborah.
DEBORAH SAYNOR: Thanks so much for spending time with us today.
Please do join us again for the next episode of FINMAR Presents Five Minutes With.
