In March Aon announced its intention to acquire rival insurance broker, Willis Towers Watson (“WTW”), which would create the largest global insurance broker by revenue upon closing. Aon and WTW had revenues of ~$3.2b ~$2.1b, respectively, in Q2 2020. The combined entity would therefore be the largest global insurance broker by revenue, easily topping rival Marsh & McLennan’s ~$4.2b in Q2 revenues. Despite Aon and WTW’s combined size, Aon expects regulatory approval without any required divestitures and for the deal to be completed in the first half of 2021.
By June there were at least three (3) shareholder lawsuits filed against WTW, citing misleading financial projections & analysis and incomplete SEC filing information. The suitors claim that this impropriety has led to a lower than fair acquisition price, of just under $30.0b in Aon stock. Upon announcement of the acquisition, Aon agreed to pay 1.08 Class A Aon shares for each WTW share, which would give Aon and WTW shareholders 63% and 37% ownership, respectively, of the combined entity. WTW directors agreed to the terms unanimously.
The leadership teams of both Aon and WTW have emphasized that the deal is about getting better, not just bigger. The two companies’ existing clients would complement each other and diversify revenue streams, as Aon has predominantly large clients, while WTW has a greater focus on the middle market. In Aon’s 2019 Global Risk Survey, the company shows that six (6) out of the top 10 business risks are un or underinsured. Aon leadership notes that the increase in free cash flow from the acquisition — pro forma $2.4b in 2019 — would allow Aon to increase investment in developing new risk management solutions to address these unmet client needs.
Stated financial and operational benefits of the transaction include enhancing Aon’s middle market presence, product depth and scale, and general operational capabilities. On the other hand, the deal comes with transactional risk, some revenue dis-synergies, key personnel loss, operations disruption, and possible regulatory constraints. The transaction will incur about $2.0b in one-time integration costs, with estimated yearly savings of about $800m per year to follow.
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