Aon reveals large M&A appetite for year ahead

Aon currently has the largest M&A pipeline it has ever had in the company’s history.

This is according to the group’s chief financial officer Christa Davies, speaking on the global broker’s Q1 2019 results call.

Aon had earlier this year shown interest in a deal to acquire fellow broking giant Willis Towers Watson, before later withdrawing its interest. 

But Davies’ comments indicate Aon is still looking to complete acquisitions this year. She said the sectors Aon is particularly interested in making an acquisition are the same areas the firm has invested in over the last couple of years.

This includes data analytics, health elective benefits, affinity, delegated investment management, cyber and intellectual property.

“We’re incredibly excited about the M&A pipeline,” Davies said. “Having said that, we continue to be really disciplined about return on capital. And I would say, on a return on capital basis, that’s exactly how we allocate cash across the firm.”

She said that share repurchase is what delivers the highest return on capital across Aon.

“We’re very excited about the share repurchase outlook for Aon in the balance of the year,” Davies added.

She revealed Aon does have the opportunity for more debt to finance M&A and share repurchase, as EBITDA increases. But the 2-2.5 leverage rate for debt-to-EBITDA will remain the same.

“In terms of how we utilise the substantial free cash flow we’re going to generate, we’re deploying that on a return on capital basis,” she said. “And we’re optimising share repurchase, organic investment and M&A based on return on capital.”

Content and scale

Aon group chief executive Greg Case said the pipeline presented opportunities to bring in content capability that could be scaled.

He said acquisitions would be made in line with what services clients were asking for.

“We’re seeing action now,” Case said. “We’re seeing clients who’ve asked us for this kind of insight. And that’s a direct response to that are some of these acquisitions that we’ve done to bring in content and capability.”

Aon saw its total revenue grow 2% for the first quarter of 2019 to $3.1bn compared to Q1 2018.

The performance was driven by 6% organic revenue growth, but was offset by 4% from the impact of foreign currency exchange.

The commercial risk solutions division saw revenues drop 6% from $1.18bn in 2018 Q1 to $1.12bn in Q1 2019, although this was largely impacted by a currency exchange impact of 5%.

Organic revenue growth for the division was 6%, with growth reported across every major geographic region.