MMC to acquire JLT, shrinking broker landscape

The insurance and reinsurance broker landscape is set to shrink further, as one of the top players Marsh & McLennan Companies, Inc. has agreed to acquire Jardine Lloyd Thompson Group plc for a cash consideration of $5.6 billion.

The pair have major specialty insurance and reinsurance broking divisions, as well as capital markets and insurance-linked securities (ILS) focused units as well.

Both are particularly active in the retrocessional reinsurance broking area, including in industry-loss warranties (ILW’s) and other collateralized solutions as well.

The combined entity of Marsh & McLennan Companies (MMC) plus Jardine Lloyd Thompson (JLT) will make a powerhouse in the broking and risk advisory world.

On the reinsurance broking side the combination of Guy Carpenter and JLT Re will have combined revenues slightly above that of Aon’s Reinsurance Solutions unit, based on 2017 revenues. However, it’s never that simple when combining two entities and the resulting merged MMC JLT reinsurance broking operations is likely to be an equal sized player for its main competitor.

The transaction was announced this morning, as covered in full at the time the news broke by our sister site Reinsurance News.

For our readers, the most relevant pieces of the M&A deal are the combined reinsurance broking operations of the pair, the combination of capital markets and insurance-linked securities (ILS) expertise from GC Securities and JLT Capital Markets, and also the pension and investments advisory businesses of JLT Employee Benefits and Marsh’s Mercer entity (given their investment advisory mandates).

It’s not yet clear how MMC intends to integrate all of the JLT businesses, whether any of the JLT brand will survive or where the firm sees any duplication.

However, MMC does see synergies of $250 million per year, after costs of $350 million to integrate the two broking businesses.

MMC is paying a cash consideration of $5.6 billion in fully diluted equity value, giving JLT an estimated enterprise value of $6.4 billion. JLT shareholders are set to receive a healthy premium to their investments, with MMC paying £19.15 pounds per share in cash, a 33.7% premium to yesterday’s JLT share price of £14.32.

“The acquisition of Jardine Lloyd Thompson creates a compelling value proposition for our clients, our colleagues and our shareholders. The complementary fit between our companies creates a platform to deliver exceptional service to clients and opportunities for our colleagues. On a personal level, I have come to know, and respect, Dominic Burke and his management team from my time both at MMC and as an underwriter. I am confident that with the addition of the talented colleagues of JLT, Marsh & McLennan will be an even stronger and more dynamic company,” explained Dan Glaser, President and Chief Executive Officer of MMC.

Dominic Burke, Group Chief Executive of JLT, added, “I am enormously proud of what JLT has achieved, founded on our people, our culture and our unwavering commitment to our clients. MMC is, and always has been, one of our most respected competitors and I believe that, combined, we will create a group that will truly stand as a beacon for our industry.”

Burke will join MMC as Vice Chairman and serve as a member of MMC’s Executive Committee after the acquisition is closed, estimated to be in Spring 2019.

On the rationale behind the deal, MMC said, “The acquisition of JLT accelerates MMC’s strategy to be the preeminent global firm in the areas of risk, strategy and people. JLT’s track record of strong organic growth and attractive geographic diversification enhance MMC’s ability to accelerate growth and margin expansion across products and geographies. ”

This M&A deal is a major occurrence for the broking business, with implications for the entire industry as the broker landscape consolidates and shrinks once again.

In reinsurance, MMC’s Guy Carpenter was already number two, while JLT Re was number four. Combined they will be number one, based on revenues across insurance and reinsurance broking business, it seems.

That does bring into question whether a counter offer could be made, as given the size of JLT Re and the gap down to the fifth largest reinsurance broker it may be compelling for Aon to try to pinch this deal, now it’s in the public light.

There are few inorganic options that could provide such growth for Aon, given its scale already, aside from perhaps an acquisition of Willis Towers Watson.

Overall, this could stimulate further M&A activity, in the broking world and more broadly across re/insurance.

The gap between the top three brokers in reinsurance and the rest is now vast, consolidating the power among three major players and with nobody else close at this time.

But specialism among the smaller brokers, particularly in broking collateralized reinsurance and retrocession to the capital markets and ILS funds, will mean they continue to have an important role to play, despite lack of market share.