The privately held NFP will be acquired by management consulting firm Aon on Wednesday for an estimated $13.4 billion in order to get access to the rapidly expanding middle-market insurance brokerage, wealth management, and retirement plan advisory markets.
The insurance industry is thought to be recession-proof because many policies are frequently guaranteed by employers and some are required by law. Despite the unpredictability of the economy, demand for insurance goods has remained strong.
The $7 billion cash and $6.4 billion in Aon stock financing arrangement, which is slated to finish in mid-2024, is connected to firms owned by private equity owners Madison Dearborn Partners and HPS Investment Partners.
The cash portion will be funded through a new debt raise of $5 billion in 2024 and the rest at the close of the deal while trying to keep the current credit rating, Aon CFO Christa Davies said.
“The price does seem rich at 15 times expected adjusted EBITDA, which is a bit above our valuation for Aon. However, Aon does expect $60 million in cost synergies over time,” Brett Horn, senior equity analyst at Morningstar, wrote in a note.
“We had wondered what management might do after regulators blocked its attempt to acquire Willis Towers Watson. The answer appears to be to look for similar but somewhat smaller deals,” Horn said.
Towers, Willis, and Aon Amid antitrust scrutiny, Watson called off a $30 billion acquisition in July 2021 that would have made it the largest insurance broker in the world.
As a result of the firm anticipating $400 million in one-time transaction and integration expenses associated with the merger, Aon shares were last down 6% in afternoon trading.
“Initially, the combined firm’s adjusted operating margin could be lower than Aon’s standalone margin. However, we expect to continue to drive adjusted operating margin expansion over the long term,” Davies said.
NFP is a property and casualty brokerage that was established in 1999 and provides clients with wealth management, retirement plan advising, and benefits advice. Doug Hammond, the company’s CEO, will stay in charge.
By acting as a liaison between an insurer and its clients, insurance brokers assist customers in locating the best policy for their requirements.
According to Aon’s investment presentation, NFP is expected to bring in $2.2 billion this year. It predicted that overall income will increase by about 14% in 2024 and 2025.
Aon’s exclusive financial advisor on the deal was UBS Investment Bank. It is receiving deal finance advice from Citi.