How an Aon-NFP success story could be a deal driver

Aon’s $13.4 billion NFP deal should see it get a sought-after boost in the attractive middle market. A success story could drive additional consolidation targeting lower-mid and smaller commercial segments, an analyst has told Insurance Business.

“If we see Aon, for example, have phenomenal success with the NFP business and the revenue synergies are enormous, I think that will basically incentivize the other brokers to say, ‘hey, if this is an area where we’re underpenetrated and we can grow quickly, we should pursue that as well’,” Meyer Shields, Keefe, Bruyette & Woods (KBW) managing director said.

Lower mid-market and smaller commercial business is likely a “particularly attractive” part of the package for Aon, Shields said, with rivals Gallagher, Brown & Brown and Marsh McLennan’s Marsh McLennan Agency (MMA) already having a strong focus on the space.

“It’ll be interesting to see whether, as we see the huge publicly traded global brokers, if they take a bigger position in [low-mid and] smaller account brokerage then maybe that creates a cycle of additional consolidation, because it’s an area of strength and no-one wants to completely cede that segment of the marketplace to a competitor,” Shields said.

Aon looks to “change the story”

Aon and NFP struck their deal last December, with the transaction expected to close in mid-2024.

The arrangement this week passed a key US anti-trust hurdle. It is a step that will have been welcomed by Aon, which saw its $30 billion mega-merger with WTW scuppered by the Department of Justice (DOJ) in 2021.

The management team at Aon will be “looking to change the story” for the business and scale up following WTW turbulence, during which competitors “picked off” prime talent, Shields said.

Aon’s failed WTW merger – a timeline

• March 2020: Announcement of Aon’s intention to acquire WTW.
• Throughout 2020-2021: Global regulatory reviews by competition watchdogs, including the US Department of Justice (DOJ).
• May 2021: WTW agrees to sell parts of its business to Gallagher to address antitrust concerns.
• June 2021: The DOJ sues to block the merger, citing antitrust issues.
• July 2021: Aon and WTW mutually decide to terminate the merger agreement due to regulatory hurdles.

Aon targets middle-market growth through NFP deal

Top of mind, though, is likely to be NFP’s middle market reach.

“If you look at the history of Aon, a lot of the brokerages that it consolidated were more focused on larger clients today and have a very significant market share there,” Shields said. “Conversely, there’s probably more opportunity for growth, and, broadly speaking, weaker competition in the smaller edge of the middle market clients serving, or insurance brokers serving, clients of that size.”

It was just a “matter of time” before Aon found a US partner in the middle-market space, according to Phil Trem, MarshBerry president – financial advisory.

“NFP’s profile is a very diversified one that has grown both organically and through M&A in the middle market,” Trem said. “What we’re hearing from both is that the intent is for NFP to continue to operate in a similar capacity as it has historically, giving Aon reach into the middle market.”

Marsh McLennan’s MMA could serve as a template for an Aon-owned NFP

Marsh McLennan’s MMA could serve as something of a blueprint for what an NFP under Aon might look like.

“MMA has been allowed to continue to run fairly independently of Marsh and be a middle-market broker that competes with other middle-market brokers,” Trem said. “The benefit to them is that they have the ability to reach up into the broader Marsh family of companies to leverage the tools and resources that they have to be more competitive if they need them.”

Middle-market-focused US firm MMA and Marsh are separate entities but do learn from each other, as recently noted by Marsh McLennan CEO John Doyle.

In a Q4 2023 earnings call, the Marsh McLennan chief exec welcomed “competition” in the middle market space, pointing out that there are still 30,000 independent agents across the US. It is a figure that remains unchanged from when MMA started being built up 12 years ago.

Given focus in recent years on its Aon United strategy, which stresses “working together as one firm,” Aon may yet take a different and more integrated approach with NFP than Marsh McLennan has with MMA.

Aon/NFP – pinning down a price

Whichever way Aon looks at bringing in the business, NFP is a multi-billion-dollar revenue generator set to open under-tapped opportunities for Aon. Factoring this in, Shields and Trem said the $13.4 billion price tag represented good value for both parties.

Subject to close, this is set to represent one the biggest prices paid for an insurance brokerage, though it far trails the $30 billion Aon had intended to fork out for WTW.

Major insurance broker deals

There had been some confusion around the 15x EBITDA figure cited by NFP on announcement of the deal versus the $13.4 billion figure from Aon. The NFP multiple was said to have baked in future earnings into 2025. Assuming that NFP is expected to continue growing in the interim, a multiple based on previous private earnings would then be “most likely bigger” than 15x, Trem said.

Earlier this week, Truist Financial confirmed plans to sell its remaining stake in broker Truist Insurance Holdings (TIH), in a deal that valued the latter at $15.5 billion, or 18x EBITDA.

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