$13.4bn NFP deal set to sharply expand Aon’s middle-market business

Aon’s proposed $13.4bn purchase of NFP Corp will significantly expand its middle-market business, particularly in employee benefits, and enable it to grow more rapidly, observers say. The deal will also position Aon to buy other smaller brokers as it builds off NFP’s existing mergers and acquisition capabilities, they add. In addition, the deal will see Aon re-enter the growing wholesale brokerage sector, which it and other large brokers exited nearly 20 years ago following conflict-of-interest concerns raised by former New York Attorney General – and later Governor – Eliot Spitzer’s investigation into the insurance industry. The deal for the US and global broker NFP is expected to close next year but Aon said it is conservatively calculating the financial metrics based on a June 2025 close. The purchase of private-equity-owned NFP won’t change Aon’s ranking as the world’s second-largest brokerage, behind Marsh McLennan, but it will add more than $2bn in middle-market revenue. Marsh McLennan has itself built up a significant book of small and middle-market business through its Marsh McLennan Agency, established in 2008. The NFP deal announcement, which came after months of market speculation about Aon’s intention to make a sizeable middle-market purchase, followed about a year and a half after Aon’s proposed $30bn acquisition of rival WTW collapsed amid antitrust concerns. The NFP deal is unlikely to face similar scrutiny from competition regulators, observers say. “Given that the target and existing client base is quite different than Aon’s... we believe it would be viewed very differently to the attempted transaction with Willis,” said John Wepler, chairman and CEO of MarshBerry, a broker advisory firm and M&A specialist. NFP was originally a financial advisory firm focusing on life insurance and wealth management. It launched an initial public offering in 2003 but was taken back into private ownership through a deal with its current owner, Madison Dearborn Partners, in 2013. Since then, it has grown and diversified through a combination of organic growth and acquisitions. Aon said it will operate NFP as a separate platform, which will continue to be headed by CEO Doug Hammond. The $13.4bn purchase price will be made up of $7bn in cash and $6.4bn in Aon shares. Aon said the price will represent 15 times earnings before interest, taxes, depreciation and amortisation – a common measure of brokers’ value – at the closing of the deal. Observers say the valuation is in line with current M&A market conditions. Aon expects NFP’s revenue to grow to $2.9bn in 2025 and its EBITDA to grow to $800m. NFP reported $2.21bn in gross revenue and $1.93bn in brokerage revenue in 2022, according to our sister paper Business Insurance’s 2023 Agents and Brokers Ranking and Directory. The brokerage, which has about 7,700 staff, reported a revenue breakdown of 44.2% employee benefits, 24.3% retail P&C, 14.3% personal lines, 4.7% wholesale and 12.6% other. About 89% of its clients are US based, and it has 313 retail offices. It is the seventh largest benefits brokerage, with $977.3m in employee benefits revenue, and, among retail brokers, NFP has the ninth-largest book of wholesale business, with $103.6m in wholesale revenue. Given the size and more fragmented nature of the middle-market sector, the purchase will give Aon more opportunity to grow its business, said Meyer Shields, managing director at Keefe, Bruyette & Woods. In recent years, Aon has underperformed in organic growth compared with many of its peers, Shields said. “I think they wanted to change the overall Aon story,” he said. And given Aon CEO Greg Case’s successful track record in integrating acquisitions, the deal will likely eventually lead to an expansion in profit margins, he said. “This acquisition unlocks the fast-growing midmarket segment, with substantial opportunities for us to enhance NFP’s strong existing distribution with content and capabilities,” said Christa Davies, Aon’s chief financial officer, on a conference call with analysts on Wednesday. Aon expects one-time integration costs of $160m, Davies said. As NFP will operate as an independent platform, cost savings will largely be related to back-office functions and third-party expenses, such as procurement costs and real estate, she said. The breakup fee, if the deal is not completed, is $250m, Case said. Keeping NFP as a separate unit will allow it to continue to operate as a middle-market specialist, said Timothy J. Cunningham, managing partner at Optis Partners, an investment banking and financial consulting firm in Chicago. “Middle-market business is very relationship driven. A lot of it is based on a producer in a relationship with a business owner, whereas on the risk management side it is very institutional,” he said. But Aon’s ownership will allow NFP brokers to call on the larger entity’s resources when needed, such as for more complex risk placements, Cunningham said. The addition of the NFP acquisitions team will create opportunities for Aon to buy more middle-market brokers, added Wepler of MarshBerry. “NFP has a well-seasoned, very capable and experienced M&A team that is very skilled in doing, by comparison to Aon, a larger number of smaller transactions,” he said. This article first appeared on our sister website Business Insurance. For further news from Business Insurance, please click here.

$13.4bn NFP deal set to sharply expand Aon’s middle-market business

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