Tie-up will combine world’s second and third-largest insurance brokers

Aon is to buy Willis Towers Watson for $30bn in an all-share deal that will combine the world’s second and third-largest insurance brokers into a new industry leader.

The deal marks the latest stage in the long-running consolidation of the insurance broking industry, and throws up a challenge to Marsh & McLennan, which until now has been the world’s number one in the sector by revenues. It comes a year after Marsh & McLennan completed the acquisition of Jardine Lloyd Thompson in a £4.3bn tie-up.

Aon considered a bid for Willis Towers Watson last year, but dropped the idea last March. There had been growing speculation that it could take another look at the company.

Willis Towers Watson shareholders will receive 1.08 Aon shares for every Willis share they own. That values Willis Towers Watson’s equity at $30bn, a 16 per cent premium to Friday’s closing price. Willis Towers Watson shares had been hit hard by the recent market volatility, falling by a tenth since they reached an all-time high of $220 last month.

Aon chief executive Greg Case said that the deal “makes us fundamentally a more capable firm in addressing client need . . . it’s about how we address client demand in a very distinctive way”.
He highlighted cyber threats and a growing urgency to protect intellectual property as two areas in which the combined firm would be stronger than the separate companies were today.

“We have distinctive capabilities,” he said, adding that the combination would allow the companies to be more innovative and improve their data analytics.

Aon said there would be $800m of synergies from the combination of the two groups, whose head offices are just metres away from each other in central London. Mr Case added: “Cost reduction is not the objective . . . it’s not the focus.”

Three quarters of the savings will come from the “consolidation of business and central support functions”, with the rest coming from technology and real estate.

Aon said that the deal would be accretive to adjusted earnings per share in the first full year after the acquisition.

The combined company will be the world’s biggest commercial insurance broker, according to data from the Insurance Information Institute, with total revenues of $19bn based on 2018 figures. That would put it just ahead of Marsh & McLennan with revenues of just under $17bn. The new number three, Arthur J Gallagher, will trail some way behind with revenues of $5bn.

Given the size of the two companies, the latest deal could attract interest from regulators, but Mr Case said: “It’s not about size — it’s not about bigger, it’s about better. It is a very competitive industry and will remain so.”

Combining the two companies could be challenging. Willis Towers Watson was itself the result of a 2015 merger between Willis and Towers Watson. Two years later chief executive John Haley told the Financial Times that putting the two companies together had been “more difficult than we thought”.

Mr Haley had been due to retire next year, but following this deal he will become executive chairman of Aon, with responsibility for growth and innovation. Mr Case and Christa Davies, Aon’s chief financial officer, will retain their positions.

Aon was advised by Credit Suisse, while Willis Towers Watson was advised by Goldman Sachs.

Source: Financial Times

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