Merger keeps Willis busy as Aon prepares for acquisitions

However, commissions and fees in the investment, risk & reinsurance segment declined 9 percent in the fourth quarter to $260 million. The decline was driven by reinsurance in the international region and the portfolio underwriting services.

Performance was better in the exchange solutions segment, which saw commissions and fees jump 21 percent year-on-year in the fourth quarter to $174 million, driven by a 34 percent boost from retiree and access exchanges revenues.

Willis managed to overachieve its 2016 merger related cost savings guidance of $20 million, instead reaching almost $40 million in cost savings, Haley says. “We feel very confident in meeting our 2018 cost savings objectives of $100 to $125 million.”

Haley anticipates additional savings of $95 million through an operational improvement programme (OIP) in 2017, when the programme is expected to be completed.

As a result of a business restructuring programme which started in the third quarter and ended in the fourth quarter of 2016, Willis made around 450 employees redundant across all segments. The costs of the programme were calculated at approximately $50 million.

“While we still have a couple of years to complete our integration, the actions required in the first year building a new organization and culture, are the hardest and most sensitive,” says CFO Roger Millay.

Total revenues grew 5 percent to $7.9 billion in 2016 compared to the pro forma revenues in 2015. Commissions and fees were up in 2016 at $7.75 billion compared to $7.34 billion in the previous year.

However, Willis’ attributable net income halved in the full year of 2016 to $312 million for 2016, down from $640 million in the previous year.

“2016 was a year of building a new organization, a new way to address our clients’ needs and developing strong focus on financial management,” Millay says. “I expect to see our financial performance momentum grow in 2017,” he adds.

Haley chimed in: “The impact and the benefits from the revenue synergies and cost programmes will grow in 2017.”

For 2017, the company is expecting constant currency revenue growth of up to 3 percent and it will continue to drive its cost improvement programmes. “We expect to generate approximately $30 million in merger cost synergies in 2017 and incur approximately $180 million of expense for integration related items,” Millay says.

While Willis reorganises post merger, Aon is looking for acquisition targets after receiving substantial cash from a business sale.

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,” says Christa Davies, chief financial officer, during a 2016 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 notes.

Aon has a track record of acquisitions.

In November 2016, for example, 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.”

In 2016, net income attributable to Aon shareholders increased 1 percent to $1.4 billion compared to the prior year.

Total revenue for 2016 was $11.6 billion, representing 3 percent organic growth. It was impacted by a 2 percent decrease in commissions and fees related to divestitures, net of acquisitions, and a 2 percent unfavourable impact from foreign currency translation.

With an operating margin of 24.5 percent in 2016, Aon’s risk solutions business performed better than HR solutions with an operating margin of an operating margin of 18.4 percent. Risk solutions is also bigger. The segment’s operating income was up 5 percent year-on-year at $1.84 billion while at HR solutions it was down 1 percent at $770 million.

When asked which areas Aon is most interested in growing either organically or via acquisitions, Case points to past health-related acquisitions as well as its growth in delegated investments that help de-risk pension plans. “We love the spaces around retirement, you see us investing a lot in data and analytics as it relates to risk, retirement and health,” he notes.