Analysts at Morgan Stanley have highlighted how Aon’s recently announced acquisition of middle-market property and casualty (P&C) broker, NFP, for $13.4 billion may have execution risks and will “take time to become accretive.”
Earlier today, At the same time, the deal is also expected to include ~20 million share at close and $7 billion debt issuance.
As a result, the transaction will allow the broker to make “significant headway” into the middle-market space.
NFP sits at ~#10 in P&C risk broking, and #7 in Health Benefits broking, according to Aon’s disclosure.
Therefore, the combination should provide Aon with much needed growth and strategic options to further expand into the middle market space.
However, the company has noted that it does not expect the deal to be accretive until 2027, which does leave ample room for potential execution risks.
Analysts stated that the NFP acquisition does present an “excellent opportunity” for Aon to expand across the middle-market space, and that it should also support Aon’s growth, especially when compared to Marsh.
But, with the deal not expected to be accretive until 2027, this presents execution risk for Aon, analysts warned.
“Making a larger agency acquisition in the space is somewhat different from Marsh’s strategy of high volume of small acquisitions over a long period of time,” analysts said.
Adding: “We would closely monitor the integration of NFP into Aon, especially as the company continues to execute its Aon United Strategy.”
Interestingly, since the acquisition was announced, the broker’s share price has tumbled after the stock exchange opened, down 7.0% at the time of this report.
Lastly, analysts explained that while the deal appears “somewhat rich”, if we consider all aspects of risks, they see this “as a necessary step” for Aon as the broker looks for its next stage of growth.
