Aon PLC’s proposed $13.4 billion purchase of NFP Corp. will significantly expand its middle-market business, particularly in employee benefits, and enable it to grow more rapidly, observers say.

The deal will also position it to buy other smaller brokers as it builds off NFP’s existing mergers and acquisition capabilities, they say.

In addition, the deal will see Aon re-enter the growing wholesale brokerage sector, which it and other large brokers exited nearly 20 years ago following conflict-of-interest concerns raised by former New York Attorney General – and later Governor – Eliot Spitzer’s investigation into the insurance industry.

The deal is expected to close next year but Aon said it is conservatively calculating the financial metrics based on a June 2025 close.

The purchase of private-equity-owned NFP, the 13th largest brokerage of U.S. business, according to Business Insurance’s most recent ranking, won’t change Aon’s ranking as the world’s second-largest brokerage, behind Marsh & McLennan Cos. Inc., but it will add more than $2 billion in middle-market revenue. Marsh McLennan has itself built up a significant book of small and middle-market business through its Marsh McLennan Agency, established in 2008.

The NFP deal announcement, which came Wednesday after months of market speculation about Aon’s intention to make a sizeable middle-market purchase, came about a year and a half after Aon’s proposed $30 billion acquisition of rival Willis Towers Watson PLC collapsed amid antitrust concerns.

The NFP deal is unlikely to face similar scrutiny from competition regulators, observers say.

“Given that the target and existing client base is quite different than Aon’s ... we believe it would be viewed very differently than the attempted transaction with Willis,” said John Wepler, chairman and CEO of MarshBerry, a Woodmere, Ohio-based broker advisory firm and M&A specialist.

NFP had its origins as a financial advisory firm focusing on life insurance and wealth management. It launched an initial public offering in 2003 but was taken back into private ownership through a deal with its current owner, Madison Dearborn Partners LLC, in 2013.

Since then, it has grown and diversified through a combination of organic growth and acquisitions.

Aon said it will operate NFP as a separate platform, which will continue to be headed by CEO Doug Hammond.

The $13.4 billion purchase price will be made up of $7 billion in cash and $6.4 billion in Aon shares. Aon said the price will represent 15 times earnings before interest, taxes, depreciation, and amortization – a common measure of brokers’ value – at the closing of the deal. Observers say the valuation is in line with current M&A market conditions.

Aon said it expects NFP’s revenue to grow to $2.9 billion in 2025 and its EBITDA to grow to $800 million.

NFP reported $2.21 billion in gross revenue and $1.93 billion in brokerage revenue in 2022, according to Business Insurance’s 2023 Agents and Brokers Ranking and Directory.

The brokerage, which has about 7,700 staff, reported a revenue breakdown of 44.2% employee benefits, 24.3% retail property/casualty, 14.3% personal lines, 4.7% wholesale and 12.6% other. About 89% of its clients are U.S.-based, and it has 313 retail offices.

It is the 7th largest benefits brokerage, with $977.3 million in employee benefits revenue, and, among retail brokers, NFP has the 9th largest book of wholesale business, with $103.6 million in wholesale revenue.

Given the size and more fragmented nature of the middle-market sector, the purchase will give Aon more opportunity to grow its business, said Meyer Shields, Baltimore-based managing director at Keefe, Bruyette & Woods Inc.

In recent years, Aon has underperformed in organic growth compared with many of its peers, Mr. Shields said. “I think they wanted to change the overall Aon story,” he said.

And given Aon CEO Greg Case’s successful track record in integrating acquisitions, the deal will likely eventually lead to an expansion in profit margins, he said.

“This acquisition unlocks the fast-growing midmarket segment with substantial opportunities for us to enhance NFP’s strong existing distribution with content and capabilities,” said Christa Davies, Aon’s chief financial officer, on a conference call with analysts on Wednesday.

Aon expects one-time integration costs of $160 million, Ms. Davies said. As NFP will operate as an independent platform cost savings will largely be related to back-office functions and third-party expenses, such as procurement costs and real estate, she said.

The breakup fee, if the deal is not completed, is $250 million, Mr. Case said.

Keeping NFP as a separate unit will allow it to continue to operate as a middle-market specialist, said Timothy J. Cunningham, managing partner at Optis Partners LLC, an investment banking and financial consulting firm in Chicago.

“Middle-market business is very relationship-driven. A lot of it is based on a producer in a relationship with a business owner, whereas on the risk management side it is very institutional,” he said.

But the ownership by Aon will allow NFP brokers to call on the larger entity’s resources when needed, such as for more complex risk placements, Mr. Cunningham said.

The addition of the NFP acquisitions team will create opportunities for Aon to buy more middle-market brokers, said Mr. Wepler of MarshBerry.

“NFP has a well-seasoned, very capable and experienced M&A team that is very skilled in doing, by comparison to Aon, a larger number of smaller transactions,” he said.