Smaller defined benefit schemes have been the driving force behind the surge in buy-in and buyout activity last year, according to new analysis by consultants LCP.
It says that transactions under £10m account for the lion’s share of the record 226 transactions in 2023.
Overall the number of transactions under £100m have more than doubled in the last three years, from 77 in 2020 to 162 in 2023.
Buy-ins/outs between £10m and £100m contributed most strongly to the growth in activity seen over 2021 and 2022, but the growth in 2023 was almost entirely driven by deals under £10m.
In contrast, the number of mid-sized buy-ins between £100m-£1bn has been broadly static since 2020. Meanwhile although transactions over £1bn more than doubled in 2023, they still made up a relatively small proportion of the overall number.
LCP believes the smaller end of the market will remain buoyant due to to a number of factors. These include streamlined insurer processes, making it easier for small schemes to access the market and more efficient for insurers to transact and well established and clearly structured adviser processes with pre-negotiated contracts, giving insurers confidence that transactions will go ahead efficiently.
In additional there is now also extra competition from two new insurer entrants in this market, Royal London and Utmost. Both are expected to be targeting funds of under £100m, although Royal London is expected to be primarily in the £50m to £100m market.
LCP partner David Stewart says: “It may surprise some readers that the record number of buy-ins/outs in 2023 was almost entirely driven by growth in transactions under £10m, which surged by over 50 per cent last year.
“In 2024, we’re continuing to see a healthy and competitive market for small schemes, with recent LCP-led processes receiving multiple insurer quotations even for schemes below £10m. Our streamlined service has now completed 94 buy-in/out transactions, with 85 per cent of processes since the beginning of last year receiving multiple insurer quotations.
“Insurers continue to have low tolerance for under-prepared schemes of all sizes when triaging transaction opportunities – with a focus on avoiding post-transaction costs and log-jams. The message to smaller schemes is that they can access highly competitive pricing, but they need to be prepared and to work with a specialist adviser with a strong track record of completing deals.”
LCP is one of a number of consultants that runs a streamlined buy-in/out service.