Aon buys WTW in $80bn mega-deal

The brokers behind the new $80m mega-deal combining two of the world’s largest firms said the deal aimed to benefit clients with more innovative platform capability in a shock statement to the market. 

The combined company, to be named Aon, will be the premier, technology-enabled global professional services firm focused on the areas of risk, retirement and health.

Aon will maintain operating headquarters in London, United Kingdom. Willis Towers Watson CEO John will take on the role of Executive Chairman with a focus on growth and innovation strategy. The combined firm will be led by Greg Case and Aon Chief Financial Officer Christa Davies, along with a highly experienced and proven leadership team that reflects the complementary strengths and capabilities of both organizations. The Board of Directors will comprise proportional members from Aon and Willis Towers Watson’s current directors.

In the official statement, Haley, said: “The combination of Willis Towers Watson and Aon is a natural next step in our journey to better serve our clients in the areas of people, risk and capital. This transaction accelerates that journey by providing our combined teams the opportunity to drive innovation more quickly and deliver more value.”

“This combination will create a more innovative platform capable of delivering better outcomes for all stakeholders, including clients, colleagues, partners and investors,” said Aon CEO Greg Case. “Our world-class expertise across risk, retirement and health will accelerate the creation of new solutions that more efficiently match capital with unmet client needs in high-growth areas like cyber, delegated investments, intellectual property, climate risk and health solutions.”

The official strategic rationale from the firm said: 

• Combines two highly complementary businesses into a technology-enabled global platform that is more relevant and responsive to client needs. The transaction unites firms that share a belief in the power of data-driven insights to create new sources of client value.
  
  
• Provides opportunity to expand and further accelerate execution against the existing Aon United and Willis Towers Watson growth strategies. The new firm will have an established focus on client value and its combined management teams have considerable experience with the integration of large, complex transactions. The teams have a shared appreciation for the importance of colleague development, the effectiveness of a one-firm growth strategy and the value of its application to the combined enterprise.
  
  
• Expected to drive year one earnings accretion to Aon adjusted EPS2 with free cash flow accretion1 of more than 10% after full realization of $800 million of expected pre-tax synergies.3 The transaction is expected to generate more than $10 billion in shareholder value creation from the capitalized value of expected pre-tax synergies, based on the blended 2020 price to earnings ratio of Willis Towers Watson and Aon UK on 6 March 2020, net of $2.0 billion in expected one-time transaction, retention and integration costs.5
  
  
• Ongoing commitment to long-term financial goals of mid-single digit or greater organic revenue growth and double-digit free cash flow growth.1 The combined platform generated significant revenue of approximately $20 billion and free cash flow of $2.4 billion in 2019. The combined firm will be well-positioned to immediately deliver mid-single digit organic revenue growth or greater and, over the long term, double-digit free cash flow growth.1
  
  
• Strong balance sheet and a commitment to a disciplined capital management approach based on Return on Invested Capital (ROIC). Strong cash flow ensures ability to invest disproportionately in highest return areas of growth and innovation for the benefit of clients. The combined firm is committed to maintaining Aon’s current credit rating.

 Transaction Details

Under the terms of the agreement unanimously approved by the Boards of Directors of both companies, each Willis Towers Watson shareholder will receive 1.08 Aon ordinary shares for each Willis Towers Watson ordinary share, and Aon shareholders will continue to own the same number of ordinary shares in the combined company as they do immediately prior to the closing. Upon completion of the combination, existing Aon shareholders will own approximately 63% and existing Willis Towers Watson shareholders will own approximately 37% of the combined company on a fully diluted basis.

Aon anticipates that the transaction will provide annual pre-tax synergies and other cost reductions of $800 million by the third full year of combination, thereby allowing the firm to continue significant investment in innovation and growth. Potential revenue synergies due to complementary capabilities are expected but not included in the synergy estimates. The principal sources of potential synergies and other cost reductions are as follows:

• Approximately 73% from the consolidation of business and central support functions, including leveraging the capabilities of the Aon Business Services operational platform across the combined group; and
• Approximately 27% from the consolidation of infrastructure related to technology, real estate and third-party contracts