Aon Corporation, the world’s
largest insurance broker is to buy US human resource (HR) and
consulting company Hewitt Associates for $4.9bn, roughly half of
its market capitalisation. The deal is the largest in Aon’s history
and significantly eclipses its previous largest deal, the
acquisition of reinsurance broking company Benfield for $1.4bn in
2008.
Aon CEO Greg Case said: “As we
continue to grow our business, this merger will give us a broader
portfolio of innovative products and services focused on what we
believe are two of the most important topics in the global economy
today – risk and people.”
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Hewitt brings with it some 3,000
clients and three primary business lines: consulting, benefits
outsourcing and HR business process outsourcing.
The Aon/Hewitt merger will
significantly enhance Aon’s capabilities in human resource
consulting and outsourcing, and give it a more balanced mix of
insurance brokerage and consulting revenues, said Moody’s investor
service senior credit officer Bruce Ballentine.
The price to be paid for Hewitt
represents a 41% premium to Hewitt’s closing stock price on 9 July,
the last trading day prior to the announcement, and will be
financed 50:50 in cash and new Aon shares. The consideration
reflects a multiple of about 7.5 times the consensus estimate of
Hewitt’s earnings before interest, tax, depreciation and
amortisation in its 2010 fiscal year.
A $1.5bn bridging loan and a $1bn
three-year term loan have been arranged by Aon through Credit
Suisse and Morgan Stanley.
Following the closing of the deal,
which is expected in November 2010, Aon intends to integrate Hewitt
with its existing consulting and outsourcing operations (Aon
Consulting) and operate the segment globally under the newly
created Aon Hewitt brand.
Hewitt chairman and CEO Russ Fradin
will serve as chairman and CEO of Aon Hewitt and will report to
Case.
Based on 2009 results, the combined
group will boast combined revenue of $4.3bn with Hewitt
contributing the larger portion, $2.2bn. Some 49% of revenue will
come from consulting services, 40% from benefits outsourcing and
11% from HR business process outsourcing.
Aon anticipates that the
transaction is expected to generate about $355m in annual cost
savings in 2013, primarily from reduction in back-office areas,
public company costs, management overlap and technology platforms
integration.
One-time restructuring costs of
$168m in 2011 and $81m in 2012 are anticipated by Aon.
The Aon/Hewitt deal is a
significant step in an ongoing process of consolidation in the
insurance broking market, noted Ballentine.
“Mergers and acquisitions have been
critical growth drivers for virtually all major insurance brokers,
and we expect this pattern to continue, given the remaining
fragmentation in the sector,” he added.
Ballentine continued that Moody’s
expects that mergers and acquisitions will remain a strategic focus
for virtually all major insurance brokers, particularly in the US.
He said potential acquisition targets in the US include nearly
6,000 regional and local broking firms accounting for about $23bn
(44%) of yearly US brokerage revenues, according to a 2009 analysis
by consultancy Reagan Consulting.
These targets include about 890
regional firms with yearly revenues of $5m to $500m per firm and
5,100 local firms with yearly revenues of $1.25m to $5m per
firm.
The Aon/Hewitt deal followed close
on the heals of an announcement on 9 July 2010 by independent US
insurance broker Swett & Crawford and UK independent wholesale,
reinsurance and specialist retail insurance broker Cooper Gay that
they are to merge.
To be renamed Cooper Gay Swett & Crawford, the combined
company will annually place about $3.5bn in premiums in the US,
London and other insurance markets and employ over 1,500 staff
based in about 60 offices on four continents.
