Marsh and JLT deal has implications for UK broking M&A - IMAS

Marsh’s acquistion of JLT will has considerable implications for broking mergers and acquistions in the UK, according to experts. 

Lauhgton-Scott said private equity would be examining the deal closely, with early signs showing a high deal multiple to earnings was reached.

”The private equity houses will be looking at this and saying if we can build significant operation in the UK, then premium prices are going to be paid,” he said.

”The point is that private equity is always looking for the exit and they are looking for markers and this is a strong marker.”

Asked about the size of the multiple, Laughton-Scott said: ”The 2017 multiple is over 30 earnings, that’s a post-tax basis.

”That would bring it down to about 24, on a pre-tax basis.  It is a very strong multiple.”

Marsh could recover some of that cost with synergies - likely to be headcount cost savings - and also the debt was accretive.

Laughton-Scott said a plus in the deal for Marsh is that it gives them greater share in employee benefits, an area of strength for JLT. 

Simon Fitzsimmons, director for mergers and acquisitions (M&A) within Mazars’ deal advisory practice, said at first glance the deal look somewhere between 15 to 17 times EBITDA.

Around 40% of shareholders were irrecovables, meaning they were tied into the Marsh deal even if higher bidder, such as Aon, came along. 

Aon, Gallagher, Willis: the next move 

Fitzsimmons said: ”It’s hugely interesting deal because Marsh and JLT two of the biggest players comoing together.

 ”It will have a massive affect on the next tier, Gallagher and Aon, Willis. 

”All of them are going to have to step up to combat the combined group.”

He said Marsh’s JLT acquisition also signalled that trade deals were a major part of M&A, and this would not be lost on private equity looking to exit.

“It ties in with some of the other deals, such as AXA buying XL Group, and AIG buying Validus, these are big deals proving there is a highly attractive interest for trade deals, and therefore, private equity ave a ready made exit,” he said. 

Across the market, there was widespread agreement JLT had achived a stunning price for its business. 

All the indications are is that the JLT purchase, on a mutliple basis, has well exceeded Marsh’s last major UK acquisition, which was Jelf.

That was reported at around 13.5times EBITDA. 

But JLT’s international profile, outstanding talent, stellar results and specialisms has led to an even more chunky deal. 

“JLT has been fiercely independent in the past and so we are surprised to see a recommended bid from Marsh & McLennan (MMC) and uncertain about JLT’s motivations behind the headlines, Keefe, Bruyette and Woods analysts wrote in a note.

“But our knee-jerk response is that this is a good deal for JLT shareholders with the key governance parties already behind it and so closure is highly likely at the 19.15 pounds price.”

Meanwhile, Panmure Gordon analyst Barrie Cornes said the offer was “fabulous” for JLT shareholders.