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With European regulators apparently pushing for multiple divestitures by Aon PLC before approving its purchase of rival Willis Towers Watson PLC, the structure of any sales remains wide open, analysts say.
Divestitures, including potentially Willis’ reinsurance division and operations in various European countries, could be made piecemeal or as a single deal, but a series of deals may be the most likely outcome, they say.
“Given the size and complexity of the merger and the need to address antitrust concerns, we believe a combination of several smaller transactions is most likely,” said Carlos Wong-Fupuy, senior director, global reinsurance ratings, at A.M. Best Co. in Oldwick, New Jersey.
Aon, the world’s second-largest broker, announced its agreement to buy Willis, the third-largest, for about $30 billion in March 2020. Soon after the deal was announced, speculation began about competition concerns that might be raised by regulators, particularly related to the reinsurance broking sector, where Aon, Willis and Guy Carpenter & Co. LLC, owned by Marsh & McLennan Cos. Inc., dwarf their closest rivals. Aon, however, said it did not expect to be forced to divest any units, including Willis Re.
Late last year, however, European Union regulators voiced concerns over the Aon-Willis deal.
The EU’s competition arm, the European Commission, said it was “concerned that the transaction may reduce the competition as regards brokerage services to large multi-national customers in the risk classes property & casualty, financial and professional services, credit and political risk, cyber and marine and brokerage services to customers of all sizes for space and aerospace manufacturing risks as well as in a few additional risk classes in specific national markets.”
Aon later reportedly offered to sell Willis’ reinsurance arm, businesses in France, Germany, the Netherlands and Spain and various corporate risk broking activities to satisfy regulators.
Discussions continued and the European regulators pushed back the deadline to approve the deal until July 27, delaying Aon’s plan of closing the acquisition in the first half of this year. Regulators in Australia, New Zealand and Singapore have also reportedly raised concerns.
“In a market already heavily concentrated, it seems that the only answer to anti-competition authorities’ objections will be to divest parts of the business in some key territories,” Mr. Wong-Fupuy said.
The list of potential acquirers could be lengthy and includes rival brokerages and private equity firms, analysts say.
Arthur J. Gallagher & Co., the fourth-largest broker, which has been expanding its reinsurance business, was early on identified as a potential bidder for Willis Re.
Observers say another potential buyer for Willis businesses is McGill and Partners, a broker launched by former Aon executive Steve McGill in 2019. Gallagher and McGill declined to comment on the speculation.
Last December, McGill said, “The cornerstone of any successful and efficient market is choice.”
There is a “very long list” of potential buyers, including private equity firms not yet involved in the insurance brokerage sector, said J. Paul Newsome Jr., Chicago-based managing director at investment brokerage Piper Sandler Cos.
“In general, the private equity markets have been quite willing to purchase brokers of all shapes and sizes,” he said.
The eventual outcome will depend on the circumstances, Mr. Wong-Fupuy said.
“Whether each of these is better suited for a strategic acquisition or by private equity will depend on their individual characteristics,” he said.
James Auden, Chicago-based managing director of insurance at Fitch Ratings Inc., said that “there’s still a lot of unknowns here,” including what specific remedies the EU may request or require.
Mr. Newsome noted that many elements that now comprise Willis Towers Watson were once individual, separate entities prior to being rolled up by the broker.
“They were all independent of each other at one point, so there’s no reason they must remain one entity now,” he said.