By Pierre Caye (McGill University), Jonathan Lui, Erica Chan, Hunter Pang, Lasheeka Ramesh (London School of Economics)
Photo: NASA (Unsplash)
Overview of the deal
Acquirer: Aon
Target: NFP
Total Transaction Size: 13 Billion
Closed date: 25th April 2024
Target advisor: Evercore (lead financial), Skadden, Arps, Slate, Meagher & Flom, Ropes & Gray (legal)
Acquirer advisor: UBS Investment Bank (financial), Cravath, Swaine & Moore, McDermott, Will & Emery (legal)
Aon has announced it has completed its $13.0 billion acquisition of NFP, cementing the largest deal ever announced in the global insurance broking sector. The transaction to buy NFP sees the exit of private equity firms Madison Dearborn Partners and HPS Investment Partners. The acquisition closed sooner than expected and as such at a marginally lower price. It passed a key anti-trust hurdle in late February; Aon’s last attempt to buy a competitor was abandoned on regulatory grounds in July 2021. It will be funded through $7.0 billion in cash and $6.0 billion in equity (19 million Aon shares).
The acquisition comes at a time when insurance M&A is beginning to rebound from its lowest level in nearly a decade. The move is expected to expand Aon’s capabilities in the fast-growing middle-market segment, offering further customer diversification. It will also allow Aon to enhance its offerings in risk and human capital management. This comes at a critical time as Aon growth has slowed modestly as it embarks on a multi-year restructuring plan. NFP will continue to operate as an independent but connected platform and is expected to benefit from Aon’s global reach and resources. Aon expects $235 million of revenue and cost synergies by the end of 2026, by which point it hopes the acquisition to be accretive.
“We are focused on using our Aon Business Services platform to scale delivery of new capabilities to small and middle market clients across Aon and NFP”
Company Details (Acquirer - Aon)
Aon is a leading global professional services firm providing a wide range of risk, retirement, and health solutions. The company offers data-driven insights to help clients manage risk, optimize benefits, and maximize performance across more than 120 countries.
Founded in 1982, headquartered in Dublin, Ireland.
CEO: Greg Case
Number of employees: ~ 50,000 people
Market Cap: $60 billion (as of 25/04/2024)
EV: $72 billion
LTM Revenue: $13.6 billion
LTM EBITDA: $4.4 billion
LTM EV/Revenue: x5.3
LTM EV/EBITDA: x16
Recent Transactions: CoverWallet (2020), Willis Towers Watson (attempted 2020)
Company Details (Target - NFP)
NFP is a leading middle market property and casualty broker with over 7,700 employees globally. The New York based firm offers corporate benefits, insurance, and wealth management services to a diverse range of clients including middle-market companies, financial advisors, and HNWIs.
Founded in 1999, headquartered in New York, United States.
CEO: Doug Hammond
Number of employees: 7,700
EV: $1.15bn (as of 31/03/2013)
Total Revenue: $1.00bn (as of 30/09/2017)
EBITDA: $126.36mn (as of 31/03/2013)
EBITDA Margin: 9.09% (as of 31/03/2013)
EV/Revenue: 1.07x (as of 31/03/2013)
EV/EBITDA: 11.8x (as of 31/03/2013)
Projections and Assumptions
Short-term consequences
Though Aon will still be ranked as the second largest global insurance company (behind Marsh McLennan), the transaction places it as comfortably ahead of the chasing pack. Aon’s global market share rises from 7.6% to 8.8%. The acquisition of NFP comes at a time when Aon Business Services has developed to efficiently handle smaller accounts at scale. As such, the deal should allow Aon to further enhance its performance in the middle-market segment at a crucial time for the broker as it seeks to diversify. The broad vision behind the acquisition is to be ‘independent and connected’ (Andersen). As such, Aon has no intention of changing the revenue-generating part of the NFP business – to this effect, Doug Hammond, chairman and CEO of NFP, will continue to lead the business within Aon. NFP is expected instead to rely on Aon’s vast resources and global network to continue its growth. There is significant potential for lucrative revenue synergies.
Though Aon shares fell 11% on the early NFP close, much of this can be attributed to an earnings miss (announced on the same day) amid lower growth in commercial risk solutions. Therefore, the market response should be taken lightly. The acquisition is broadly seen in a positive light. Fitch Ratings projects the acquisition will increase Aon’s scale by nearly 20% (on revenues) and more than 10% (on EBITDA) in the short-run.
Long-term Upsides
This deal marks a strategic step for Aon in expanding its presence in the fast-growing middle-market segment, reinforcing Aon's position as the second-largest global broker. It is poised to deliver substantial long-term benefits, strategically enhancing Aon's market position and service capabilities.
Integrating NFP's specialized expertise in risk management, wealth management, and retirement planning will enable Aon to offer more comprehensive and customized solutions to a diverse client base. This acquisition leverages the strengths of both firms, promising to create more value for clients through Aon's robust operational platform, Aon Business Services. In particular, there is anticipation for revenue growth driven by NFP's strong financial performance. Its substantial revenue streams, which include $738 million from property and casualty insurance and $1.1 billion from benefits and life in 2022, will significantly boost Aon's financial performance. This diversification, coupled with the deal's anticipated accretion to Aon's earnings per share (EPS) and contribution to robust free cash flow, enhances Aon's financial stability and growth prospects.
While Aon offers more comprehensive and tailored solutions to its clients, particularly in the middle-market segment, this acquisition also promises operational synergies and efficiency gains. These synergies are expected to result in cost efficiencies and improved service offerings, further improving Aon's ability to scale its offerings and provide greater value to clients across its global network.
Risks and Uncertainties
Given Aon's sizable acquisition of NFP, valued at approximately $13.4 billion upon closure, it is worthwhile to examine whether the projected revenue growth and synergies will justify the substantial price paid.
Strategically, Aon sought to enhance its presence in the middle-market segment—a large and rapidly growing market. By acquiring NFP, Aon gained expertise across risk management, benefits administration, wealth management, and retirement plan advisory services. With the promising long-term EPS accretion and strong combined free cash flow resulting from the deal, the only critical question remains: Will the anticipated revenue growth align with the deal price?
Together, combining the fact that Doug Hammond, CEO of NFP, continues to lead the business as an independent yet interconnected platform within Aon. This continuity ensures stability and leverages existing expertise during the integration process, mitigating potential operational inefficiencies arising from the acquisition. Hence, for now, considering the industry’s stability and effective managerial management, the outlook for the Aon-NFP deal appears quite favourable.
Despite the alignment of cultural values between Aon and NFP, which creates the potential for synergy, the practical impact on customer satisfaction and retention remains uncertain. If customer rates fail to grow as anticipated, it could diminish the perceived value of the deal. In such cases, measuring customer growth becomes a critical factor in evaluating the long-term success of the acquisition.
Finally, the acquisition of NFP by Aon encountered no geographical obstacles. As aforementioned, NFP now functions as an independent yet interconnected platform within Aon, maintaining its brand identity while going to market as “NFP, an Aon company.” Therefore, if Aon and NFP can effectively leverage their shared values to enhance client relationships and maintain customer loyalty, this deal will prove valuable and risk averse.