Mid-sized brokers need to be careful in their approach to mergers-and-acquisition proposals but the abrupt cancellation of Aon’s $30-billion acquisition of Willis Towers Watson is not going to slow down deal-making within the brokerage sector, a Montreal-based insurance M&A expert suggests.
Aon and Willis Towers Watson are, respectively, the second and third biggest commercial property and casualty brokerage in the world. The Dublin-based firms announced July 26 they mutually and voluntarily agreed to terminate their combination agreement, originally announced in March of 2020.
“In most sectors prone to consolidation, once you get one transaction of two very large players that gets nixed, others will be more careful in how they approach it. We have seen that in a number of industries over a number of years,” said Georges Pigeon, Montreal-based deal advisory partner at KPMG Canada, in an interview Wednesday with Canadian Underwriter.
For Aon plc and Willis Towers Watson plc, their decision to terminate their merger agreement resulted from an “impasse” with the United States Department of Justice, whose anti-trust division announced June 16 it asked an American court to block the deal. The court had yet to make a decision by July 26, when the brokerages said the deal is now off.
Other large brokerages who want to merge will have to make “well-developed and reasoned” arguments, said Pigeon.
“I don’t think it’s going to put a pause or significantly slow the M&A activity. You just don’t see an Aon-Willis type of transaction every year,” said Pigeon, who advises both buyers and sellers of carriers and brokerages. Pigeon has led more than 100 domestic and cross-border M&A transactions in financial services, including P&C, wealth management, banking and fintech.
Aon and Willis Towers Watson are traded on the New York Stock Exchange. The deal was subject to approval from regulators in several jurisdictions (including Canada and the U.S.) as well as an Irish court.
Marsh & McLennan Companies Inc. of New York City became the world’s biggest brokerage in 2019 when it closed its acquisition of Jardine Lloyd Thompson.
In its court filing regarding the Aon-Willis deal, the U.S. competition regulator claimed that brokerages other than Aon, Marsh and Willis do not offer large customers the same quality and combination of services (for example, an extensive global network of offices and sophisticated data and analytics) that Aon, Marsh and Willis currently deliver.
So the DoJ is essentially arguing that many large American corporations really only have a choice of three brokerages when they are looking for insurance.
“Those three are in a class of their own, given their size and global footprint,” Pigeon said of Marsh, Aon and Willis. Pigeon was not commenting on the legal arguments the DoJ made.
Below the Big 3, there are a significant number of brokerages that focus on the North American market and are much smaller than Aon, Marsh and Willis, he said.
“They remain active on the M&A front. They are going to do small, medium to larger-sized acquisitions. Could there be transformational acquisitions, in three to five years? It’s possible.”
Aon had argued that the U.S. DoJ complaint reflects a lack of understanding of Aon’s business, the clients Aon serves, and the marketplaces in which Aon operates.
Brian Parsons, a former CEO of Willis Towers Watson Canada, also disagreed with the DoJ.
“The DoJ is incorrect if they feel that only the publicly-traded firms can offer specialty services like loss prevention, alternative risk financing, analytics, captive management, etc. I can assure you that is not the case,” Parsons told Canadian Underwriter in June. Parsons is now Toronto-based president of BFL Canada’s risk management division and vice chairman of Consulting Services Inc. Montreal-based BFL is the largest Canada-based employee-owned commercial P&C brokerage. (Hub, Gallagher and NFP are headquartered in the United States while BrokerLink is ultimately owned by Intact Financial Corp., which is publicly traded).
When risk managers for large corporations are deciding on a brokerage, they are not only considering the placement of insurance, KPMG’s Pigeon said July 28. Large corporate clients would also consider what the risks are and where the risks are located.
Risk managers are also considering the brokers’ ability to place group benefits and advise on how to mitigate risks such as cyber, said Pigeon.