A $4.3bn business sale to Blackstone fuels Aon’s M&A appetite

Re/insurance broker Aon plans to deploy a significant part of the proceeds from the $4.3 billion sale of its outsourcing platform to acquisitions, executives said during a Feb. 10 results presentation.

Aon has signed a definitive agreement to sell its benefits administration and HR business process outsourcing (BPO) platform for a cash consideration of $4.3 billion to Blackstone, a private equity and alternative asset management corporation.

Depending on future performance, an additional consideration of up to $500 million may be included after the deal closes, the company said in a statement reporting its 2016 results.

The total after-tax cash proceeds are expected to be approximately $3 billion.

“Going forward, we would expect that we would deploy the proceeds and our free cash flow growth in a mix of M&A and share repurchase,” said Christa Davies, chief financial officer, during a results presentation.

“If you look at 2016, we did about a billion dollars of M&A. As we think about the pipeline of M&A we have fantastic return on capital opportunities there,” Davies noted.

In November 2016, Aon entered into an agreement to acquire Admix, a health and benefits brokerage and solutions firm based in Brazil.

Also in November, Aon acquired Stroz Friedberg, a New York-based risk management firm with offices in the US, London, Zurich, Dubai and Hong Kong.

Aon CEO Gregory Case, said: “We will continue to make investments all along the topics retirement, health, risk.”

The sale of the benefits administration and HR BPO platform outsourcing business is “another step to sharpen our focus on advice and solutions,” Case said. “We are reallocating resources from capital intensive outsourcing assets to accelerating investment in high growth, high margin areas across retirement and health, including such areas as delegated investment consulting, health and benefits brokerage and private healthcare exchanges.”

The business Aon is divesting offers low revenue growth, low margins and is quite capital intensive, and the move is set to improve the company’s return on capital, the executives explained.

At first, however, the sold business is set to eliminate $323 million of adjusted operating income going forward.

Aon will cooperate with Blackstone after the sale by selling and distributing the products while Blackstone is going to run the technology and call centres.

Case pointed to the exchanges, where Aon will be involved in the architecture and design, the carrier relationships, the actuarial work, and the risk management. Blackstone is going to support the administration and call centres and the work flow, according to aon.

“We are now actually bringing to our client innovation of both the front end, more intensively, through us, and on the operations side, through Blackstone. This is a real win-win,” Case said.

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