Sales to secure Aon-Willis deal could take many forms, say analysts

With European regulators apparently pushing for multiple divestitures by Aon before approving its purchase of rival Willis Towers Watson (WTW), the structure of any sales remains wide open, according to analysts. As first reported in Business Insurance, divestitures, potentially including WTW’s reinsurance division and operations in various European countries, could be made piecemeal or as a single acquisition, but a series of deals may be the most likely outcome, they added. “Given the size and complexity of the merger and the need to address antitrust concerns, we believe a combination of several smaller transactions is most likely,” said Carlos Wong-Fupuy, senior director, global reinsurance ratings, at AM Best. Aon, the world’s second-largest broker, announced its agreement to buy WTW, the third-largest, for $30bn in March 2020. Soon after the deal was announced, speculation began about competition concerns that might be raised by regulators, particularly related to the reinsurance broking sector, where Aon, WTW and Guy Carpenter (owned by Marsh McLennan), dwarf their closest rivals. Aon, however, said it did not expect to be forced to divest any units, including Willis Re. But late last year European Union regulators voiced concerns over the Aon-WTW deal. The EC said it was “concerned that the transaction may reduce the competition as regards brokerage services to large multinational customers in the risk classes property and casualty, financial and professional services, credit and political risk, cyber and marine, and brokerage services to customers of all sizes for space and aerospace manufacturing risks, as well as in a few additional risk classes in specific national markets”. Aon has now offered to sell WTW’s reinsurance arm, businesses in France, Germany, the Netherlands and Spain and various corporate risk broking activities, to satisfy regulators. European regulators have pushed back the deadline to approve the deal until 27 July, delaying Aon’s plan of closing the acquisition in the first half of this year. Regulators in Australia, New Zealand and Singapore have also raised concerns. “In a market already heavily concentrated, it seems that the only answer to anti-competition authorities’ objections will be to divest parts of the business in some key territories,” Mr Wong-Fupuy said. The list of potential acquirers could be lengthy and includes rival brokerages and private equity firms, analysts said. A source told Commercial Risk Europe that Howden and A J Gallagher are frontrunners for the WTW business in Europe. It is also thought that McGill and Partners, the London-based broker launched in 2019 with the backing of private equity (PE) firm Warburg Pincus, could be in the ring for the acquisitions. There is a “very long list” of potential buyers, including PE firms not yet involved in the insurance brokerage sector, said J Paul Newsome Jr, managing director at investment brokerage Piper Sandler. “In general, the private equity markets have been quite willing to purchase brokers of all shapes and sizes,” he said. The eventual outcome will depend on the circumstances, Mr Wong-Fupuy said. “Whether each of these is better suited for a strategic acquisition or by private equity will depend on their individual characteristics,” he said. James Auden, managing director of insurance at Fitch Ratings, said “there’s still a lot of unknowns here”, including what specific remedies the EU may request or require. The EC is apparently keen for any investor to be in it for the long term, to avoid the business being bought back by Aon from a PE firm in a couple of years’ time. Mr Newsome noted that many elements that now comprise WTW were once separate entities. “They were all independent of each other at one point, so there’s no reason they must remain one entity now,” he said. For further news from Business Insurance, please click here.

Sales to secure Aon-Willis deal could take many forms, say analysts

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