Major mergers & acquisitions news breaking this morning, as it has been announced that broking and advisory giant Marsh & McLennan Companies, Inc. (MMC) is to acquire Jardine Lloyd Thompson Group plc for $5.6 billion.
The acquisition sees another of the mid-sized global insurance and reinsurance brokers going to a new home and will boost Marsh & McLennan’s position in reinsurance broking, combining Guy Carpenter and JLT Re’s reach and expertise.
The deal has been cemented for a cash consideration of $5.6 billion in fully diluted equity value, meaning holders of JLT’s common shares will receive cash consideration of £19.15 pounds per share, equating to an estimated enterprise value of $6.4 billion.
“The acquisition of Jardine Lloyd Thompson creates a compelling value proposition for our clients, our colleagues and our shareholders. The complementary fit between our companies creates a platform to deliver exceptional service to clients and opportunities for our colleagues. On a personal level, I have come to know, and respect, Dominic Burke and his management team from my time both at MMC and as an underwriter. I am confident that with the addition of the talented colleagues of JLT, Marsh & McLennan will be an even stronger and more dynamic company,” commented Dan Glaser, President and Chief Executive Officer of MMC.
MMC said the acquisition will be funded using a combination of cash on hand and proceeds from debt financing.
After the deal is completed, Dominic Burke, Group Chief Executive of JLT, will join MMC as Vice Chairman and take up a position as a member of MMC’s Executive Committee.
Burke said, “I am enormously proud of what JLT has achieved, founded on our people, our culture and our unwavering commitment to our clients. MMC is, and always has been, one of our most respected competitors and I believe that, combined, we will create a group that will truly stand as a beacon for our industry.”
Geoffrey Howe, Chairman of JLT, also said, “The JLT Board is unanimous that MMC has made a compelling offer which reflects the substantial value created by the extraordinary efforts of our people. I’m confident that combining the two groups’ strengths will create a business uniquely well equipped to serve its clients in the future. We have long admired MMC and we can think of no better home for our business.”
JLT came into being in 1997 when Jardine Insurance Brokers plc, which itself began almost 50 years ago, merged with Lloyd Thompson Group plc.
The JLT Group now operates across 40 countries, with strong representation in the UK and Australia as well as in key emerging markets across Asia and Latin America.
The JLT Specialty business provides risk and insurance broking advice to energy, mining, healthcare, construction, marine, and aerospace sectors as well as in financial lines, political risk and trade credit.
JLT Re is the reinsurance broking arm, and offers world class risk analysis and risk transfer solutions to its insurer clients across all lines of treaty and facultative reinsurance business.
The firm also has an Employee Benefits business, which acts as advisors, brokers and service providers in areas such as pensions consultancy and administration, employee benefits and wellness, life insurance, and wealth management.
MMC has all of these divisions and more, hence the integration of JLT should be a neat fit into the MMC corporate structure.
The company said that the acquisition of JLT, “Accelerates MMC’s strategy to be the preeminent global firm in the areas of risk, strategy and people. JLT’s track record of strong organic growth and attractive geographic diversification enhance MMC’s ability to accelerate growth and margin expansion across products and geographies.”
The company also said the deal brings a set of assets that are, “Both diverse and complementary to MMC’s current operations and enhances the ability to accelerate growth of the two businesses across products and geographies. More specifically, the Acquisition represents a meaningful step forward in MMC’s continued push to expand in higher growth segments.”
One of the key benefits cites is the, “Expanding network for MMC’s global reinsurance business,” the expanded footprint in key growth markets such as Latin America and Asia, as well as the strengthening of its specialty risk broking capabilities.
MMC said it will buy all of the issued, and to be issued, share capital of JLT for £19.15 pounds per share in cash, a 33.7% premium to the September 17th 2018 closing price of £14.32.
MMC said it expects to realise annual cost synergies of roughly $250 million, realised across the next three years but resulting in one-time integration costs of approximately $375 million.
The firm said it expects the acquisition will be “immediately accretive to adjusted cash EPS” and expects it will produce a double-digit internal rate of return, according to its model. On an adjusted GAAP EPS basis the deal is expected to be largely dilutive in 2019, but neutral by 2020.
MMC said it has committed bridge financing secured from investment bank Goldman Sachs to provide the funds necessary to complete the M&A transaction with JLT, with the deal expected to close in spring of 2019.
MMC needs approval of the JLT shareholders, but already has “irrevocable undertakings” from JLT’s largest shareholder, Jardine Matheson Holdings, and JLT directors, who between them represent 40.5% of the holdings.
The transaction represents a compelling combination of two of the largest insurance and reinsurance broking groups.
In reinsurance only, Guy Carpenter (owned by MMC) was the second largest, while JLT Re was the fourth.
Putting the two together, based on 2017 revenues, would see the combined Guy Carpenter and JLT Re entity with slightly higher revenues than competitor and current market leader Aon’s Reinsurance Solutions division.
Of course, combining two businesses never results in an exact 1 + 1 of revenues, with some duplication and costs likely to erode some of the total, but once synergies are realised the combined Guy Carpenter and JLT Re entity will be a true global competitor for anyone else in the marketplace.
This transaction is likely to stimulate others to look at how they can acquire their way to greater scale in the insurance and reinsurance broking business and we could see a wave of broker M&A emerging.
