Inside In Full: Quick-take: Aon-Willis – An iron determination to close
This week, we revealed that Aon/Willis Towers Watson are looking to separately divest a block of Willis' European businesses and Willis Re...
as they work to get their mega merger approved by regulators in the face of competition concerns.
Not to undercut the significance of the Willis Re scoop, but the disposal of this business has probably been in the base case for some time now, and indeed on the day the deal was announced Insurance Insider flagged it as an area that was sure to attract significant antitrust scrutiny (The inclusion of the $300mn fac business may not have been factored in given that it sits within Willis' insurance business).
As such, the pivotal new information here is the intention to dispose of the combined French, German, Spanish and Dutch business, which have combined revenues of ~EUR750mn ($879.5mn), with a big skew to France.
The dramatic move in Europe seems like a clear demonstration that Aon/Willis are determined to take the required steps to shepherd the deal through to closing.
Up until now the public rhetoric may have left a question mark around Aon's willingness to contemplate disposals to complete the transaction. That can no longer be in doubt.
And indeed an iron determination to close the deal makes sense.
Aon's management team has staked its (not inconsiderable) reputation for execution and competence on completing the deal. And more importantly, it offers both huge financial gains and major strategic benefits that Aon hopes to harness to its drive to address unmet client need.
Moreover, from a Willis perspective, it is difficult to see a Plan B given succession questions and the damage which has been done to the business by over a year of (inevitable) drift.
Aon/Willis' bet here seems to be that if they let the geographies go in continental Europe, then they will be in a position to secure clearance despite nagging concerns around the large account space, and potentially some of the specialties where Willis is strong.
If that proves to be the case, this may be a good trade – even if it is painful to lose some of the jewels in the Willis crown in the form of Gras Savoye and Willis Re.
And how are the parties performing on the difficult road to closing?
Set against its own rhetoric that the deal would close without disposals, Aon is tracking negatively.
However, sources in the merger arb community have talked about the level of the disposals cap as a kind of anchoring point investors use to assess the scope for divestitures. That level is set at $1.8bn in the merger agreement and is broadly in line with the combined impact of Willis Re and the continental European businesses.
Given that these caps are set following antitrust exercises undertaken pre-deal by the parties' advisers, the $1.8bn may also provide a better indication of what realistic Aon management expectations were for disposals.
In which case the rhetoric we heard may simply reflect the reality that effective negotiators do not tend to open with the admission that they are ready to make big concessions.
Regardless, it remains the case that investors and market watchers can be very literal and straightforward in reading management intentions and expectations – meaning that these moves will come as unpleasant surprises for some.
Whether or not these proactive moves forestall the need for further disposals will also be important in judging how well Aon has shepherded the deal towards closing.
At various points specialty lines including space, aerospace manufacturers', marine, cyber and finpro have been flagged as possible areas of excessive concentration. Sources have also pointed to certain areas in human capital benefits including the investment advisory business.
Aon has also nailed its colors to the mast on timing, repeating at every opportunity that it expects to close the transaction inside of H1.
It has not yet backed away from that and if I had to bet I would say it is still likely targeting the completion on that timetable.
The hour glass still has three months to run and M&A within broking can be executed quickly, particularly when only a relatively small number of counterparties are involved.
As such, the next month is likely to be crucial in determining the way the divestitures play out and whether Aon can grind its way to the line by the end of H1, or needs to go into overtime.
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