AON TO BUY JAUCH DEAL GIVES BROKER THE GLOBAL PARTNER IT NEEDED

CHICAGO-Aon Group Inc. will significantly increase its German and Continental European operations with the acquisition of Jauch & Huebener KGaA, Germany's largest broker.

The deal also fulfills Hamburg, Germany-based Jauch & Huebener's need for a global partner to serve its multinational clients and keep revenues aloft.

The Aon offer, for an undisclosed amount, edged out other bidders, including Marsh & Mc-Lennan Cos. Inc., which was rumored to be eyeing Jauch & Huebener.

The German, Austrian and Swiss operations of the two companies will be merged into a new Hamburg-based brokerage unit, Aon Jauch & Huebener.

The combined unit will have 1,800 employees and gross revenues of about 400 million deutsche marks ($224.8 million), the two companies announced last week.

The new company is expected

to have three key divisions-retail brokerage, reinsurance and

employee benefits-though final details have yet to be ironed out.

Jauch & Huebener was forced to seek an international partner after Johnson & Higgins, its former partner in the UNISON broker network, was acquired by Marsh & McLennan in March and ended its ties to the network (BI, March 24; March 17).

In addition, Jauch & Huebener has seen revenue growth decline in the soft competitive market, as well as losing ground to brokerage competitors that have been rapidly consolidating (BI, July 21).

Jauch & Huebener Executive Partner Christian Dahms, who will continue to head the new Aon Jauch & Huebener, described Aon as the "perfect fit" for Jauch & Huebener's strategy to expand its international business outside of its Continental European stronghold.

Synergies between the two brokers will give the merged company a global business advantage, Mr. Dahms said.

The acquisition by Chicago-based Aon also saves Jauch & Huebener from a significant loss of business if it were to remain independent. Mr. Dahms estimates the brokerage would have lost about 20% of its business-including more than 30% of its retail business-without an international partner.

"The new arrangement is not expected to hurt us," said Jochen Scheele, who heads Jauch's retail business. "We've explained the situation to our clients, and they've signaled support."

Jauch's retail earnings come mostly from brokerage services for industrial and service companies in Germany, Austria and Switzerland. Business is conducted through its main office in Hamburg and branches throughout Germany. It also does business in Hungary, the Czech republic and Slovakia.

The UNISON network was a key source of international business for Jauch & Huebener. Its large-industrial clients were served by Johnson & Higgins in foreign countries, including the United States, while it served the clients of its UNISON partners in Germany and other countries.

"As of today, UNISON is dead," Mr. Dahms said. "Any broker interested in international business has to link up with one of the leading players."

In a statement Aon said it shares a "commercial philosophy" with Jauch & Huebener, placing "particular importance on entrepreneurism in all aspects of business and on interdependence, which encourages resource sharing as part of a global teamwork for the benefit of clients."

In the same statement, Patrick G. Ryan, chairman and CEO of Aon Corp., said: "We are very pleased to have been able to bring together our already strong operations in Germany and Central Europe with those of Jauch & Huebener. This new enterprise will provide superb service for all our mutual clients and wider career horizons for executives and staff who have formerly worked with Aon and Jauch & Huebener.

"This combination further advances Aon's long-term strategy in a most significant way," Mr. Ryan continued. "The new joint enterprise positions us ideally as we now plan together for the development of our business in Europe into the next century."

At a press conference at Jauch & Huebener's operational center in Muehlheim, Germany, Dirk Verbeek, chairman of Aon Risk Services Worldwide, said that the acquisition strengthens Aon in Europe because Jauch's core business in retail, reinsurance and employee benefits complements Aon's strategy to expand business in all of these lines internationally.

Aon's existing German brokerage and consulting subsidiary, Aon GmBH, has a staff of about 450 and had 1996 revenues of more than 85 million deutsche marks ($47.8 million) (BI, Feb. 10). It ranked as the fourth-largest broker in the German market, according to Aon.

One key area of interest for Aon is Jauch & Huebener's reinsurance business.

Jauch & Huebener is Germany's leading reinsurance broker, commanding a 75% share of that market. Approximately 13% of its gross revenues in 1996 came from reinsurance brokerage services.

Even without this deal, Aon Re Worldwide is already the world's largest reinsurance broker, with an estimated $396 million in reinsurance brokerage revenues in 1996.

The most recent acquisition makes Aon Jauch & Huebener a dominant reinsurance broker throughout Europe, as well.

Horst Knaudt, a Jauch partner who heads the firm's reinsurance division, estimated that Aon and Jauch & Huebener together will have about a 75% share of the European reinsurance brokerage market, whereas Jauch & Huebener alone had only a 30% share.

Plans for the combined firm's reinsurance operations include the expansion of reinsurance business into Italy, Germany, Belgium, the Netherlands and Switzerland.

The union with Aon also creates Europe's second-largest employee benefits broker, though only about 2% of Jauch & Huebener's revenues were derived from benefits business in 1996.

The link with Aon also will provide Jauch & Huebener with added expertise and know-how in several areas, including alternative risk transfer, Mr. Scheele said.

Jay Cohen, an analyst at Merrill Lynch in New York, said, "Strategically, it makes sense." Jauch will greatly enhance Aon's business in Germany and it will also give Aon a platform for business in Eastern Europe as that market develops, he said.

Given its track record in growing through acquisition Aon will likely successfully absorb Jauch, Mr. Cohen said.

"They have consolidated so many different types of operations...and you make mistakes early on and learn from them," he said.

The purchase will likely also seal the end of the UNISON network, Mr. Cohen said.

"I would expect that other members of UNISON will question their own independence," he said.

John F. Roskopf, Aon's director of financial relations, said the acquisition was a cash transaction, but declined to disclose the purchase price, saying the partners of privately held Jauch asked that the information not be released.

Mr. Roskopf confirmed that Aon won out over other bidders for the German intermediary.

A spokesman for J&H Marsh & McLennan's reinsurance arm, Guy Carpenter & Co., had little to say about the latest Aon acquisition.

"We don't comment on other companies' acquisitions," said Nathan J. Sambul, managing director for marketing communications at Guy Carpenter in New York. "We still think that we hold an outstanding franchise in the world of reinsurance."

Meanwhile, in conjunction with the merger announcement, Jauch & Huebener released more detailed financial figures than the private partnership has previously disclosed.

Jauch's total 1996 revenues amounted to 318 million deutsche marks ($211.5 million), up 2.6% over 1995 revenues.

For 1997, the company projects a slight decline in revenues to 316.4 million deutsche marks ($177.8 million). Group profits in 1997 are expected to reach 5.2 million deutsche marks ($2.9 million).

Jauch & Huebener published its revenue break-down for the first time following the merger announcement; BI previous estimated these figures. The company reports that it earns 70% of its revenues from retail, 16% from reinsurance, and 8% from employee benefits. The remainder includes non-brokerage services, such as claims administration and consulting, as well as investment income.

Including Jauch & Huebener's 1996 gross revenues on a pro forma basis, Aon Group Inc. would have $4.17 billion in gross revenues. Marsh & McLennan had 1996 gross revenues of $5.46 billion, of which $1.08 billion was generated by its Putnam Investments Inc. subsidiary.

Aon stock closed at $53.94 per share on Friday, down from $54.06 on Thursday before the deal was announced.

Rodd Zolkos contributed to this report.