Aon’s $13.4 billion acquisition of NFP is the largest deal ever announced in the global insurance broking sector.
Funds affiliated with Madison Dearborn Partners and HPS Investment Partners are the sellers. The transaction will be funded by $7 billion of cash and $6.4 billion of Aon’s stock.
Aon expects to fund the cash portion with around $7 billion of new debt, according to a filing. It plans for $5 billion of it to be raised in 2024 and $2 billion raised when it completes the transaction.
The new debt will span a range of maturities, subject to market conditions. NFP Chief Executive Officer Doug Hammond will continue to lead the business as an independent, connected platform within Aon, reporting to Aon President Eric Andersen.
Aon said it expects about $400 million in one-time transaction and integration costs. The combination is expected to dilute adjusted earnings per share in 2025, and break even in 2026.
It will add to earnings starting in 2027, according to the statement. The deal is expected to be completed in the middle of next year.
The sale is welcome news for holders of the NFP’s high-yield debt. The company’s 6.875% bond due 2028 rose more than 8 cents on the dollar.
From Aon’s perspective, investment-grade spreads are very compelling right now for issuers, the funding market is as compelling as it’s been in a while.
Similarly, the high-yield bonds of United States Steel rallied after Nippon Steel, an investment-grade company, agreed Tuesday to buy the Pittsburgh-based firm for $14.1 billion.
However, the sudden wave of investment-grade M&A won’t necessarily last, said Knutson.
UBS Group AG served as financial adviser to Aon, and Cravath, Swaine & Moore and McDermott Will & Emery were external legal counsel. Evercore Inc. acted as lead financial adviser to NFP, while Skadden, Arps, Slate, Meagher & Flom and Ropes & Gray were external legal counsel.
Aon’s acquisition of NFP will have a significant effect on the structure of the insurance broking sector.
- the transaction promises to reinforce Aon’s position in its core markets and to bolster it in secondary markets
- by total broking revenues, Aon will continue to be ranked second globally and comfortably head of the chasing pack
According to its global rankings of insurance broking and MGA / MGU groups, NFP is a notable competitor across all broking segments with a worldwide ranking as high as seventh for employee benefits activity plus life and health insurance retail broking, 12th for reinsurance broking, 18th for commercial P&C retail broking, 35th for private P&C retail broking, and 14th across all forms of broking combined.
As such, using the data collected for 2022, the acquisition of NFP has the following impacts on Aon’s positioning in the insurance broking sector:
• for total broking activity, its global market share would move up from 7.6% to 8.8% and it would remain in second place behind Marsh McLennan;
• for commercial P&C retail broking business, its global market share would advance from 8.9% to 9.7% and it would also remain in second place behind Marsh McLennan in this field;
• for private P&C retail broking business, its global market share would surge from 1.0% to 1.7% and it would rise from 22nd to ninth position in a comparatively fragmented segment;
• for employee benefits activity plus life and health insurance retail broking, its global market share would increase from 6.4% to 8.5% and it would remain in third place behind WTW and Marsh McLennan;
• for reinsurance broking business, it would continue to be ranked first worldwide with a global market share edging up from an already dominant 30.8% to 31.8%.
As for wholesale broking and MGA / MGU / cover-holder activity, these are segments in which both Aon and NFP appeared lower down the worldwide rankings. However, the combination of the two organizations would see them rise to a ranking of around 15th in the former segment with a global market share of 1.5% and to a ranking of around tenth in the latter segment with a global market share of approximately 1.7%.
Overall, these movements show how the transaction promises to reinforce Aon’s position in its core markets and to bolster it in markets in which it is less influential as part of the largest deal ever announced in the global insurance broking sector (at well over twice the value of Marsh McLennan’s acquisition of Jardine Lloyd Thompson in 2018/19 and not counting the aborted merger of Aon with WTW).
Indeed, in its core segments, the deal will keep Aon comfortably ahead of a chasing pack of fast-growing competitors which include Acrisure, Alliant, Gallagher, HUB and Lockton, among many others.
by Yana Keller
