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JLT acquisition will help Marsh & McLennan expand globally: Analysts

Posted On: Sep. 19, 2018 10:15 AM CST

JLT acquisition will help Marsh & McLennan expand globally: Analysts

Marsh & McLennan Cos. Inc.’s $5.6 billion acquisition of Jardine Lloyd Thompson Group PLC will help Marsh enhance its status as the world’s largest insurance broker by allowing it to further expand its global reach, according to market analysts.

The transaction, which is expected to close in the spring of next year, calls for New York-based Marsh & McLennan to acquire all issued and to-be-issued share capital of London-based JLT for £19.15 ($25.17) per share in cash, representing a 33.7% premium from JLT’s closing share price of £14.32 on Monday, according to a statement issued by Marsh & McLennan Tuesday morning as the deal was announced.

The deal is subject to required antitrust and regulatory approvals and the approval of JLT shareholders, and there is no termination fee on either side, as both companies are committing to closing the transaction, Marsh & McLennan officials said Tuesday.

Market analysts hailed the deal as a sound strategic move by Marsh & McLennan.

In a note issued Tuesday, Mark Dwelle, director of insurance equity research at RBC Capital Markets LLC in Richmond, Virginia, called the proposed acquisition “a deal that is more strategic than financial.”

“Improved growth and expense synergies help finance the deal while we expect revenue growth (and avoiding revenue dis-synergy) will be the main driver of upside,” said the note. “We view the deal favorably and as having a higher ceiling than continued share buybacks.”

“The key strategic reason for the deal is to acquire JLT’s talent and its track record of above average organic growth particularly in specialty segments,” said the note. “The deal will deepen Marsh’s penetration in the U.K. and Australia and enhance its ability to accelerate growth and improve margins. We think this is plausible but will depend on holding onto existing customers and revenue streams without disrupting current growth.”

“We think this is one of those transactions where years from now investors will recognize the importance but in the near-term will be viewed as mixed,” said J. Paul Newsome, managing director at Sandler O’Neill & Partners LP in Chicago, in a note. “There are very few global insurance brokers left in the world. The purchase of JLT likely solidifies Marsh’s lead today as well as years to come. As less mature countries develop, Marsh will increasingly be there to benefit from relatively rapid development of the insurance industry. If Marsh did not buy JLT, some other company would, and Marsh’s lead would be less.”

 “While the deal would at first be dilutive to cash earnings (due to intangible amortization), we view it positively as it expands MMC’s international brokerage business (JLT is big in the U.K. market),” Wells Fargo Securities LLC said in a statement issued Tuesday.