Rating agencies Moody’s and S&P Global Ratings have revised their outlooks for Willis Towers Watson (WTW) to positive, while maintaining a stable view on Aon, following yesterday’s confirmed merger deal between the two broking giants.
After weeks of speculation about a potential deal, the companies announced a definitive agreement to combine in an all-stock transaction with an implied combined equity value of approximately $80 billion.
Scheduled for completion in the first half of 2021, the transaction will produce the world’s largest re/insurance broking and consulting firm, with pro forma revenue of about $20 billion and pro forma net income of $3.6 billion based on 2019 results.
In light of this news, Moody’s has decided to affirm the Baa2 senior unsecured debt and P-2 commercial paper ratings of Aon, despite the significant execution and integration risk inherent in merging two large organisations.
The rating agency expects that the combined group will maintain credit metrics consistent with Aon’s current levels, while also strengthening its position in markets such as the US, the UK and Europe.
At the same time, the combination is expected to improvement the respective product capabilities of Aon and WTW across their major business lines of commercial risk, retirement, health, reinsurance, and data and analytics.
S&P agreed that the combination would have no immediate effect on its issuer credit rating for Aon (A-/Stable/A-2).
It noted that Aon’s credit measures have shown relatively good stability over the past five years through a period of sustained focus on organic growth.
Turning to WTW, Moody’s affirmed its Baa3 senior unsecured debt rating and changed the rating outlook on the broker to positive from stable, based on the view that it will be part of a larger organisation with stronger operating margins and credit metrics.
Similarly, S&P placed its ‘BBB’ long-term issuer credit rating on WTW on CreditWatch with positive implications.
It explained that the combination with Aon modestly improves its assessments of the strength of the combined entity’s business, creating a more-complete insurance broker in the large account and middle-market space.
