08 March 2019

What a difference a day makes: USD 24bn insurance deal sank in less than 24 hours

Investors barely had time to get excited about Aon’s announcement that it was in early stage consideration of an all-scrip, game-changing acquisition of industry rival Willis Towers Watson, which was worth USD 23,500 million at the time - a statement prompted by an earlier Bloomberg report incidentally - before the insurance broking juggernaut did a swift U-turn on its deliberations.

The London-headquartered, Nasdaq-listed risk, retirement and health cover provider pointed fingers at Irish regulations that forced confirmation of the talks after details were leaked to the public domain, a move which the latest Bloomberg article suggests then made it difficult for Aon “to move forward because it was still refining the terms of its offer”.

It is not often a deal is dead in the water before even getting off the ground but even if this one took off, the fact it would have brought together the second- and third-largest players in the insurance brokerage sector would have raised eyebrows at a regulatory level and lead to severe competition scrutiny.

Furthermore, a potential tie-up was scuppered by the early report as Aon lost almost 8 per cent of its value in the markets following the group’s confirmation announcement, as shares closed with a capitalisation of USD 37,740 million, while those of Willis Towers Watson finished 5 per cent higher on 5th March, meaning any agreement would have ended up more expensive than prior to the rumour.

An Aon-Willis Towers Watson tie-up would have certainly been one of the largest on record targeting the global insurance agencies and brokerage sector, and certainly among the top 30 by value targeting the wider finance and insurance industry, according to Zephyr, the M&A database published by Bureau van Dijk.

On one hand, Willis Towers Watson has roots dating to 1828 and is the result of the merger of Willis and Towers Watson in an all-scrip deal worth USD 8,890 million in January 2016. The company has 43,000 employees across more than 140 countries and had revenue of USD 8,510 million in the 12 months to 31st December 2018 (FY 2017: USD 8,200 million). Annual net profit attributable to the business totalled USD 695 million, compared to USD 568 million in FY 2017. Clients include about 92 per cent of the FTSE 100, 89 per cent of the Fortune 1000 and 86 per cent of the Fortune Global 500 companies.

Aon, meanwhile, had 50,000 employees and operations in over 120 countries and sovereignties in the 12 months ended 31st December 2018. The company booked consolidated total revenue of USD 10,770 million in FY 2018 (FY 2017: USD 9,990 million) and posted net profit attributable to shareholders of USD 1,130 million (FY 2017: USD 1,230 million).

If a takeover had gone ahead, it would have been a game changer within the insurance brokerage industry, where the players who traditionally connect businesses looking for protection with insurers have been seeking ways to diversify. The deliberations came amid a wave of consolidation in the brokerage industry; last year rival Marsh & McLennan (MMC) acquired Jardine Lloyd Thompson of the UK for USD 6,444 million while last month a GTCR-led investor group announced plans to acquire a majority stake in AssuredPartners in a deal that Bloomberg suggests values the US insurance brokerage at about USD 5,100 million.

© Zephyr