Marsh owner expects short-term revenue hit from JLT acquisition

The chief executive of Marsh-owner Marsh & McLennan Companies expects some “near-term choppiness” as a result of the JLT acquisition.

Dan Glaser made the comments on MMC’s 2019 Q1 results call, saying the group had modelled for short term dip in revenue.

“Not that we’re not going to fight every fight, but we are realistic about what big integrations mean in people businesses,” Glaser said.

“There will be some short-term noise, but that’s all it is. It’s noise. The combination of Marsh & McLennan and JLT will prove to be spectacular.”

And Glaser said he was optimistic for what the acquisition would achieve for the group in the longer term.

“When you think about a mid to long-term time horizon, anything we’re talking about potential revenue breakage will largely be meaningless in the overall scheme of things. But it could create a headwind in the short term,” he added.

Acquisition costs

The deal only completed on 1 April, but Marsh revealed that in the first three months of this year that $47m had already been spent on acquisition and integration costs related to the JLT deal.

This includes $20m on staff reductions, with the rest of the costs mostly made up through the restructuring and legal and consulting costs.

The previous quarter had seen only $12m spent on JLT acquisition-related costs, with all of this primarily made up of legal and consulting costs.

Marsh paid $5.6bn to acquire JLT, with the total one-off integration costs previously estimated at around $375m.

The acquisition adds around 10,000 new staff members to MMC, but Insurance Times has reported the deal will put around 3,750 jobs at risk.

Concerns have been raised that it could be the best staff that end up leaving the group, but Glaser said Marsh are the “employer of choice” in the industry.

“I have no doubt that we have a collection of individuals that will form teams that are very solid in the marketplace and really on a top talent basis,” Glaser said.

Performance

In spite of the added costs, the first quarter of 2019 saw the risk and insurance division, consisting of Marsh and reinsurance arm Guy Carpenter, improve its adjusted operating margin to 33.6% compared to 32.5% for the same period last year.

Marsh’s revenue for the period increased by 5% on an underlying basis to $1.7bn. For the EMEA region, which includes Marsh’s UK operations, there was underlying revenue growth of 3%, although taking currency fluctuations into account revenues for the region were shown as falling 2% from $643 to $633.

“With our successful completion of the acquisition of JLT Group and a great start to the year we believe the company is well positioned to deliver solid results in 2019,” added Glaser.