NEW YORK: Management consulting firm Aon says it will buy privately held NFP in a deal valued at about US$13.4bil to tap the fast-growing middle-market segment of insurance brokerage, wealth management and retirement plan advisory.
Demand for insurance products has remained firm in an uncertain economy and the sector is considered recession-proof as many policies are often guaranteed by employers, while some are mandated by the government.
The deal with funds linked to private equity owner Madison Dearborn Partners and HPS Investment Partners is expected to close in mid-2024 and will be funded with US$7bil in cash and US$6.4bil in Aon stock.
The cash portion will be funded through a new debt raise of US$5bil in 2024 and the rest at the close of the deal while trying to keep the current credit rating, Aon chief financial officer Christa Davies said.
“The price does seem rich at 15 times expected adjusted earnings before interest, taxes, depreciation and amortisation, which is a bit above our valuation for Aon.
“However, Aon does expect US$60mil in cost synergies over time,” Brett Horn, senior equity analyst at Morningstar, wrote in a note.
“We had wondered what management might do after regulators blocked its attempt to acquire Willis Towers Watson. The answer appears to be to look for similar but somewhat smaller deals,” Horn said.
Aon and Willis Towers Watson called off a US$30bil merger in July 2021 that would have created the world’s largest insurance broker amid anti-trust scrutiny.
Aon shares were last down 6% in afternoon trading, as the company expects to incur US$400mil in one-time transaction and integration costs related to the deal.
“The combined firm’s adjusted operating margin could be lower than Aon’s standalone margin. But we expect to continue to drive adjusted operating margin expansion over the long term,” Davies said. — Reuters
Source: The Star