What does Aon’s purchase of Willis Towers Watson mean for brokers?

The “worst kept secret in town” has finally come out in the open as global broker Aon bought Willis Towers Watson (WTW) in an all-share deal for $29.9bn (£22.5bn).

Subject to regulatory and shareholder approval, Aon said that the deal will create $800m in pre-tax synergies, as well as generate $10bn in shareholder value. Combined equity value will total an impressive $80bn.

The firms predict that the transaction will be completed in the first half of 2021.

The brokers announced the acquisition almost exactly 12 months after rumours about it first emerged. Luigi Maggio, managing director at Kennett Insurance Brokers, said “many in the industry felt it was just a matter of time”.

Ashwin Mistry, executive chairman at Brokerbility, agreed that the purchase was “not surprising at all, the worst kept secret in town”.

Despite being unsurprised by the announcement, Mistry added that the deal will have “unprecedented” impacts as it has created “a super-juggernaut”.

He explained: “The market is stagnating towards very, very large super giants in the insurance space.”

‘Blockbuster deal’

Many in the industry believe Aon’s purchase of Willis Towers Watson is a response to Marsh’s acquisition of JLT last April for $5.6bn.

Peter Blanc, chief executive at Aston Lark, said: “It was probably inevitable after Marsh moved for JLT that Aon would look to try and respond with a blockbuster deal of their own and this certainly qualifies as a blockbuster deal. It’s very exciting.”

Maggio agreed, saying that Aon and WTW would “look to hit back to rival the number one status as [a] worldwide broker”.

Blanc said the deal brings huge advantages to Aon. “Willis have some huge specialisms, and as you bring the distribution of Aon together with Willis’s specialism skills - that’s a pretty powerful combination,” he said.

Furthermore, Mistry believes that the data capture Aon can secure from WTW will also reap benefits for the broker.

“This is all about data,” he said. “Acquisitions are the cheapest form of acquiring data with GDPR and I think that Willis Towers’s ability to mine data is second to none. [Now, the firm is going to be] an incredible force to be reckoned with.”

Aside from the organisational advantages, both Aon and WTW shareholders should also be rubbing their hands together, as they will be able to benefit from cost savings and synergies.

Simon Fitzsimmons, director, deal advisory, M&A at Mazars, added: “There’s the potential of £1bn-plus synergies that will eventually add to shareholder value.”

Competition concerns

Despite the plus points, the deal raises concerns about market competitiveness. Fitzsimmons went so far as to say that the Competition and Markets Authority (CMA) may even take issue with the purchase.

“A little over a year ago, you had four big global players,” he said. “If this goes through, you’re going to have two big global players and then the next one down – Gallagher – is quite a bit smaller.

“It’s significantly reducing competition and, also, it would be interesting to see what the insurers themselves feel about this, how much pressure they’re going to be getting and whether or not they’re feeling that this is a detrimental deal.

“You’ve got Marsh on one side and you’ve got Aon on the other side: whether that’s just too much of a duopoly.”

Blanc agreed: “It marks another reduction in competition for some of the big corporate clients.”

Rob Marshall, Trident Insurance chief executive, believes that bigger does not equal better. “It just ends up with more delays and a less personal atmosphere,” he said.

“There is a mindset that some firms have to grow, almost for the sake of it.

“Is anyone asking will it be good for business? My answer would be unlikely, simply because so few takeovers work, as the cultures are always at loggerheads.”

Maggio added: “Clients will be unnerved by the change and the unknown of how they are going to be dealt with in the future”.

Wider market impacts

Meanwhile, there is the question of what will happen to WTW’s wholesale broker Miller, which it bought back in June 2015.

Miller itself has been on the acquisition trail, and purchased fellow broker Alston Gayler in October 2018.

Fitzsimmons predicts that WTW may dispose of Miller to sweeten the deal with Aon, but nothing has been confirmed.

In terms of broker consolidation in the broader market, Fitzsimmons said that the Aon-WTW deal could actually lead to more rather than slow the market down.

“It might mean more opportunities for more consolidation, for more people to cherry pick bits out of the combined group, such as the Millers of this world and other divisions as well,” he added.

Maggio agreed: “Undoubtedly there will probably be opportunity indirectly through spin-offs or parts of the larger group being hived off, such as specialist divisions being disposed of within the newly formed organisation.

“I would expect in the medium-term to see the trading styles of certain sectors of their book change. For example, how they handle SME, mid-market and the route to market with regard to distribution for operational efficiency, such as the introduction of national service centres.”

However, Mistry has other concerns. “I can see capacity being sourced from alternative sources apart from insurers,” he said.

“I think [the deal is] going to have a much wider impact on the whole distribution of insurance and what we understand as insurance. This will have a significant change in the landscape that we all understand.”

Opportunities

But Blanc was upbeat. “There might be some more opportunities for us mid-sized brokers to try and step up into the big corporate arena,” he said.

Despite labelling the acquisition “a successful merger”, he also pinpointed that the key would be in the deal’s execution.

He continued: “It’s two very big businesses to put together, so there’s a huge execution risk with it. It’ll be really interesting to see how they pull it off.”