Aon-NFP Merger a Win-Win for Middle Market Segment, Aon Says

A merger between Aon and NFP will be a win-win for both brokers, creating a company that will be greater than the sum of its parts. While those weren’t the exact words used by Aon’s CEO Greg Case, they were certainly the thrust of his messaging for the rationale behind the proposed $13.4 billion acquisition of NFP.

It’s all about unlocking the fast-growing middle market segment for Aon, while providing NFP with enhanced distribution capabilities via the Aon Business Services (ABS) platform.

“Together with NFP, we see significant opportunity to go from individually good to collectively better, based on our similar cultures, the operational platform they operate that enables us to quickly and efficiently bring products and solutions, all underpinned by Aon United and a relentless focus on delivering more value to clients,” said Case during an analysts’ call to discuss the acquisition, which was announced on Dec. 20. (Here are Aon’s presentation slides to describe the deal).

As the brokers are of different sizes and operate in different market segments, the deal is unlikely to run afoul of the US Department of Justice, which blocked Aon’s proposed acquisition of Willis Towers Watson in 2021, several industry observers agreed. (See below for their comments).

“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…,” according to London-based insurance consultancy, Insuramore.

At $13.4 billion, the deal is well over twice the value of Marsh McLennan’s acquisition of Jardine Lloyd Thompson in 2018/19 – a deal ranking that excludes Aon’s aborted $30 billion acquisition of WTW in 2021, Insuramore said.

When the deal closes in mid 2024 (or conservatively in June 2025), Insuramore said, Aon will continue to be ranked second globally behind Marsh and “comfortably ahead of a chasing pack of fast-growing competitors which include Acrisure, Alliant, Gallagher, HUB and Lockton, among many others.”

Case described NFP as an “exceptional, well-established risk, health, and wealth broker with a strong growth profile in the middle market, with market-leading distribution talent under a one-firm culture.” He went on to say that it also has “a very strong track record of driving organic and inorganic revenue growth.”

The acquisition of NFP “will expand Aon’s presence in a large, fast growing middle market segment with substantial opportunity to enhance NFP’s offerings, analytics and products through our Aon Business Services operating platform,” Case said. (ABS is part of the broker’s “Aon United” strategy, a program that aims to harness the company’s global capabilities for its clients – this time in the middle-market segment. ABS creates globally scaled operational and technology capabilities and connects them to clients.)

“Like Aon United, their ‘One-NFP strategy’ is focused on coordinating delivery to clients with an integrated collaborative culture delivered by supporting operations, sales and back-office functions,” Case said.

Little Competitive Overlap

What NFP doesn’t have is much competitive overlap with Aon, Case indicated.

Case noted that Aon has not served the middle market segment in the way it will be able to serve it. The NFP acquisition “really creates additional amplification.”

“It’s the middle market segment, and it does not overlap with what we’ve got; it’s different, but the need is massive,” he said.

With the brokers’ different competitive focuses and sizes, the Aon-NFP merger is unlikely to run afoul of the US DOJ, as did Aon’s proposed acquisition of WTW, according to several market pracitioners. (In 2021, the DOJ sued to block the Aon-WTW merger, arguing that it would bring together two of the “Big Three” global insurance brokers, which could harm competition and raise prices. Aon and WTW ultimately pulled the plug on the deal.)

“My view is that this deal should probably get through because a) one assumes that Aon has checked in advance as far as it can with the relevant authorities that there won’t be objections this time and b) NFP, while very substantial, is a lot smaller than WTW,” said Alan Leach, managing director of Insuramore, in an emailed statement. (Leach was previously the founder and MD of Aon’s Finaccord. He launched Insuramore in early 2021).

While Aon would not provide further commentary about the deal, a source familiar with the transaction said the proposed acquisition of NFP is very different from the failed acquisition of WTW in that Aon and WTW were far closer in size and client segments.

NFP is a middle market solutions provider with presence only in the US, Canada, UK and Ireland and there is very little competitive interaction, said the source.

Fitch Ratings Responds

“Geographically, [NFP] earns its revenues across U.S., Canada, and Europe, but the vast majority of its commissions (~92%) come from the U.S.,” said Fitch Ratings in a commentary about the proposed acquisition. Fitch placed NFP Corp.’s and NFP Holdings LLC’s “B” Long-Term Issuer Default Ratings on rating watch positive after the announcement from Aon. Fitch said the ratings decision reflects Fitch’s view that Aon has stronger credit qualities than NFP.

Fitch expects the acquisition will positively affect NFP’s business and financial risk profile, “given Aon’s leading global competitive position in the insurance brokerage and retirement/HR/health consulting industries.”

“Aon is a global industry leader in delivering Risk and Human Capital capabilities, and thus NFP’s clients will benefit from Aon’s global resources and distribution. NFP is one of the largest U.S. middle market insurance brokers, which Fitch expects will continue to operate its current strategy, including growing via M&A, in the next 12-24 months until deal closing.”

M&A is likely to remain a core component of NFP’s growth strategy for the foreseeable future, even pre-closing, said Fitch, noting that the company could spend nearly $650 million on acquisitions in 2023, has spent more than $2.6 billion since 2018, and has completed more than 350 deals since 2013.

“NFP historically funded M&A via a combination of debt and operating cash flow, resulting in a high leverage profile. The company’s leverage ratio is expected to remain high until deal completion in 2024/2025 [when the debt would likely be repaid].”

“If the deal were to be terminated for any reason, however, leverage and coverage would remain key rating factors…” Fitch continued.

Reinforcing Aon’s Market Position

According to Insuramore’s analysis of the 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.”

While the transaction promises to reinforce Aon’s position in its core markets and bolster it in secondary markets, by total broking revenues, “Aon will continue to be ranked second globally [behind Marsh] and comfortably head of the chasing pack,” said Insuramore.

As such, using data collected for 2022, Insuramore noted that the acquisition of NFP would have 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/coverholder activity, these are segments in which both Aon and NFP appeared lower down the worldwide rankings in 2022,” Insuramore continued. “However, the combination of the two organizations would see them rise to a ranking of around 15^th 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%.”