There are several talking points that are evident about the planned merger of broking giants Aon and Willis Towers Watson. First, it’s not about getting bigger; it’s about getting better. And, second, it’s about addressing unmet client needs.
But it indeed will get bigger – creating the largest international insurance broker – merging under the name Aon.
“Our combined firm will accelerate innovation on behalf of clients and be better able to deliver more value to all stakeholders. And while we will be bigger, yes, that’s not what this transaction is about. This is about better,” said Greg Case, chief executive officer, Aon, during an analysts’ call on March 9, the day the merger was announced.
Aon intends to combine with Willis in an all-stock deal valued at about $30 billion that is expected to be completed in the first half of 2021, subject to regulatory approvals. Under the terms of the proposed deal, Aon’s shareholders will own 63% and WTW shareholders will own 37% of the combined company.
“We will fundamentally be more innovative, more capable, more relevant and more responsive upon [the close of the deal],” Case said during the teleconference. “We will combine diverse experience from our 95,000 colleagues and shared values from both of our organizations.”
John Haley, CEO, Willis Towers Watson, agreed, saying, the important point about the transaction is that it isn’t about getting bigger. “In fact, the most attractive part of this combination is the fact that we bring together some complementary capabilities.” (Haley will serve as executive chairman after the close of the transaction, “focused on driving growth and innovation,” said Case).
The merger is “about getting better and it’s about being better able to serve clients and leading to better outcomes for them,” said Haley.
“It’s more important that together we can build new things and deliver new value to clients,” Haley continued. “The whole premise about this merger is not about where we are today; it’s about where we can be in the future.”
While Aon has taken steps toward innovation solutions including applying data and analytics to better inform and advise clients, “we’re not going fast enough…,” emphasized Case.
Willis Towers Watson also “has a growth strategy with demonstrated success,” but he suggested that WTW colleagues still would agree “there is significant opportunity to accelerate together.”
As an example of the potential for the merged company, Case said, the two brokers will be able to bring to clients tools like the Willis Towers Watson digital health platform and the Aon digital risk platform.
In addition, Case said, the combined firm will have more than $20 billion of revenue and $2.4 billion of free cash flow on a pro forma 2019 basis. This provides the merged firm with “the ability to invest significantly in new solutions and build on our technology-enabled analytics platforms.”
“This allows us to broaden our reach, grow the overall pie and create net new opportunities to meet growing demand.”
Unmet Client Need
Case spoke repeatedly of the industry’s failure to meet client need. “Our clients are facing greater challenges than ever before in large and growing categories of the global economy in risk, retirement and health,” he said, noting that six of the top 10 global risks are uninsured or underinsured, according to Aon’s Global Risk Survey.
Further, difficult to model risks, such as cyber, intellectual property and climate change are rising, he said in his opening remarks.
During the Q&A session, Case pointed to another example of the industry’s ability to meet client need – claims as a percentage of GDP. “That’s a percentage that went up for 30 years up to 1990 and then literally … every decade, every year since for three decades, it’s gone down,” he added.
It’s easy to come to the conclusion that overall, as an industry, “we’re not progressing as fast as our clients on a lot of the topics that are important to them. So this effort, this combination is about how we address unmet need.”
Christa Davies, chief financial officer, Aon, agreed, saying there is substantial unmet demand from clients and, “as we accelerate innovation and develop new solutions, we expect substantial upside over time.”
During the Q&A, a question was posed about whether there was any contemplation that another company might want to purchase Willis.
Haley responded by saying, there are three priorities to consider in a merger: culture, strategy and then financials. “If I think about the culture, one of the things that’s been so attractive to me and the rest of the Willis Towers Watson leadership and our board is the shared vision that we have between Aon and between Willis Towers Watson,” he affirmed.
He cited the Aon United strategy and how Aon positions itself as a global professional service firm, which is the same direction Willis Towers Watson has been headed. “So we look at this as joining up with a firm that shares the same thoughts about the culture and structure. And it should be relatively easy, I mean, as easy as these things ever are, to do that.” (The “Aon United” program, which has been operational since 2010, aims to harness the company’s global capabilities for its clients.)
Haley said the companies share similar strategies, a vision of the market, concern for the unmet client needs and ideas on what they aim to build. “So when I look at those things and I see how the two firms match up and why the deal is attractive, it’s hard for me to imagine anybody else matching up in that way.”
Asked why the merger would take until the first half of 2021, Aon’s CFO Davies, explained the process. In the next few months, she said, a proxy will be filed and then about six months after that, Aon and Willis Towers Watson shareholders will vote on the merger.
In addition, Davies said, it will take quite some time to get regulatory approval in almost 100 countries.
Initial Ratings Agency Responses
S&P Global Ratings was positive in its response to the proposed transaction. Discussing Aon in a bulletin, S&P said the deal could strengthen Aon’s middle-market presence while enhancing its overall scale, product depth and operational capabilities.
“Mitigating concerns [for Aon] include integration risks associated with its transformational nature, revenue dis-synergies, key personnel loss, operational disruption, and potential effects of regulatory-driven constraints,” said S&P, noting, however, that its report did not constitute a rating action.
In a separate ratings announcement, S&P placed Willis Towers Watson on CreditWatch positive. “This combination modestly improves our assessment of the strength of the combined entity’s business, creating a more-complete insurance broker in the large account and middle market space,” S&P continued.
Moody’s Investors Service affirmed its Baa3 senior unsecured debt rating of Willis Towers Watson and changed the rating outlook on WLTW to positive from stable based on the view that it will be part of a larger organization with stronger operating margins and credit metrics.
Moody’s said that while the combination will strengthen the respective market positions of the two brokers in the U.S., the UK and Europe, and expand their product capabilities, the firms will also face execution and integration risks, including potential attrition among producers and clients, in combining two global organizations.
Moody’s noted that within the first three years, the group expects to spend about $2 billion in one-time integration, retention and transaction costs to achieve savings of about $800 million per year.
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