By Aidan Gregory

April 7 - (The Insurer) - Dealmakers are expecting an even more challenging quarter ahead for M&A in financial services as insurers and other companies digest the market impact of the sweeping trade tariffs announced last week by U.S. President Donald Trump.

Companies are likely to wait until market volatility subsides before pursuing M&A plans although the U.S. tariffs could create opportunities for buyers willing to take risks, said Patrick Sarch, head of UK public M&A at law firm White & Case in London.

Expectations that a second Trump presidency would herald cooling inflation, falling interest rates and deregulation had already been scuttled by an initial round of tariffs in February, knocking deal volumes, bankers and lawyers told The Insurer.

“We were optimistic coming into 2025 … And now we have these tariffs to deal with,” said a senior capital markets banker in New York.

Globally, $23.3 billion of insurance M&A transactions were announced in the first quarter of 2025, LSEG data shows, a drop from $29.7 billion in the fourth quarter of 2024, although up from $17.3 billion from the same period last year.

Quarterly M&A volumes for the sector have not surpassed $30 billion since $42.2 billion of deals were announced in the fourth quarter of 2021, the last quarter before Russia's invasion of Ukraine.

Insurance M&A volume in Europe in the first quarter totalled just $7.17 billion, dominated by Cinven’s 3.5 billion euro ($3.85 billion) sale of German closed life book consolidator Viridium Group to an Allianz-led consortium in March.

In wider financial M&A, which also includes banks and asset managers, there was $164.6 billion of announced deals in the first quarter of 2025, compared with $146.9 billion in the fourth quarter of 2024 and $89 billion in the third quarter, LSEG data shows. However, this figure was artificially lifted by a $72 billion state injection of capital into four Chinese banks at the end of March.

U.S. FIG M&A in the first quarter totalled $37.3 billion, down 34.4% versus the fourth quarter of 2024, while Europe's volume was up 2.3% at $36.1 billion, LSEG data shows.

UNCERTAIN BACKDROP

Getting deals done has proved harder since the start of the war in Ukraine and the latest market volatility will limit the appetite of buyers, while making the process longer as they study how they or their targets will be affected, M&A lawyers said.

“The pace of activity is slower against the backdrop of uncertainty,” said Jason Zemmel, private equity partner at McDermott Will & Emery in London. “All of this leads to greater diligence and consideration,” he added.

U.S. tariffs on Britain have been set at 10%, compared to 20% for the European Union, making M&A targets in the UK potentially more attractive for inbound buyers, said Sarch.

“We are seeing a lot of investor/acquirer appetite to deploy capital in UK companies,” said Sarch. “That should drive more volume in Q2/Q3.”

Another key deal driver across all sectors, including insurance, will be the significant backlog of financial sponsor-owned assets.

Three years of challenging M&A and equity capital market conditions have forced many private equity firms to hold assets for much longer than normal.

“That driver for sponsors to exit investments is there and in some cases the pressure is increasing because of longevity of the whole period,” said Sarch.

The Trump administration's policy direction will continue to be a key concern for dealmakers, who say the eventual removal or tapering of tariffs would be a catalyst for higher levels of M&A and equity capital markets activity.

“Investors are waiting to see how things pan out,” said an equity capital markets banker in Paris.

“We will see in the next few weeks what the fallout is off the back of the tariffs whether things will be negotiated and walked back, or if it gets pushed to a greater extreme and more damage is done,” the banker added.