Aon and WTW union could bring $1.3bn cost synergies - but also regulatory scrutiny

“It’s a huge deal just a year on from when Marsh & McLennan (MMC) acquired Jardine Lloyd Thompson (JLT). It’s going to have substantial implications throughout the market.” Simon Fitzsimmons, director corporate finance at Mazars.

Aon and Willis Towers Watson have confirmed a $30 billion all-stock transaction, with heavy scrutiny of the deal expected from the Competitions and Markets Authority.

Aon announced today (March 9 2020) its plans to merge with Willis Towers Watson (WTW) in an unprecedented $30 billion deal that brings together two insurance broker heavyweights, but what does a deal of this magnitude mean for the insurance market?

“It’s a huge deal just a year on from when Marsh & McLennan (MMC) acquired Jardine Lloyd Thompson (JLT) . It’s going to have substantial implications throughout the market,” Simon Fitzsimmons, director corporate finance at Mazars told Intelligent Insurer.

In March 2019, MMC and JLT committed to divest JLT’s aerospace practice to address issues raised by the European Commission (EC).

“[With the Aon/WTW deal] there will be huge cost synergies, in the £1 billion ($1.3 billion) range. This will come from savings in the back office and finance departments,” said Fitzsimmons. “I believe there will also be benefits from a technology angle and because the two brokers compliment each other in certain lines of business.”

But he added that there is still a lot of red tape to go through. “The two combined entities will get scrutinised heavily by the Competitions and Markets Authority (CMA). The CMA looked at the MMC deal in great detail and split up parts of the business,” he said.

Analysts at Peel Hunt said the merger will provide significant scale and room for material cost cutting while protecting fee income.

“The Lloyd’s Market is materially investing in technology to lower brokerage costs and this merger is a response to the technological disruption of the commercial broker market similar to what we have seen in the UK motor sector,” according to Peel Hunt.

The deal has yet to have been approved by shareholders on either side and given the careful consideration needed on deal of this size, Fitzsimmons believes the deal could still take over a year to go through. In Aon’s conference call today (March 9 2020), the company claimed it will take some time to get regulatory approval.

After the merger is complete, existing Aon shareholders will own approximately 63 percent of the company, while WTW shareholders will own around 37 percent, according to Aon.