Briefing: Job losses and Willis Re hived off - implications of the Aon merger

Briefing by content director Saxon East 

In the great game of corporate one-upmanship, Aon has just got one over its biggest rival Marsh.

Aon boss Greg Case has gone one better than Marsh chief executive Dan Glaser’s JLT deal, with his $80bn market cap merger with Willis Towers Watson.

Now the deal has finally landed, the market will be asking themselves what this means.

Job losses

Firstly, there is going to be a large round of job losses at Willis and Aon. Aon expects annual $800m of pre-tax synergies.

This will come from reducing headcount, where there is duplication, and combining office use.

This is the biggest benefit to shareholder value, and a major factor behind the deal.

Case also has a strong track record of maintaining healthy profit margins and growing free cash flow, far better than Willis.

Willis shareholders, for their part, will get a 16% premium to Friday’s closing price in the $30bn all-share transaction.

This deal now boils down the corporate insurance sector into two dominant players: Marsh and Aon.

The cynic will suggest that this will help Aon and Marsh maintain prices, and their profit margins, when the regulators likely pass the deal through.

Aon will probably shed some of Willis’ divisions, in the same way that Marsh sold off JLT’s aviation arm.

Analysts believe Willis Re is most likely to be hived off and sold.

Retaining talent

One question people will ask is around talent, and whether there will be a loss of talent in the same way as the JLT and Marsh deal.

However, Willis does not arguably have that same tight-knit and unique culture as JLT, meaning this is unlikely to be a problem.

This also has an impact on the UK consolidation landscape.

Ardonagh, GRP, PIB and Aston Lark are the main consolidators of the SME and personal lines market.

With Marsh and Aon just having done megadeals, there will be a pause on any major trade deals from the megabrokers.

PIB, Aston Lark and PIB fall out of the buying range of Gallagher, which typically looks for £300m deals in the UK, using its free cash flow as a basis for deals, rather than powering up for even larger deals by using debt and equity as well. 

That means we are going to see more private equity ownership in the coming years, until the trade sale landscape settles again.

Going back to the rationale for the deal, Aon is a strongly performing business, with $2.1bn in free cashflow.

There is only so far Aon could have grown organically, and with the possibility to eke some margin improvement on a less efficiently run Willis, and tighten their grip on the corporate insurance and advisory space, it was a deal just too tempting for Aon to ignore.

In the 21st century law of the corporate jungle, quite simply, the big just keep on getting bigger.