Aon Notes ‘Terrific Opportunities’ for M&A

Aon Plc remains a buyer across its business units of wealth, retirement, health and risk, according to senior executives on its fourth-quarter earnings call Friday.

In response to questions about merger and acquisition potential, the firm’s leadership noted, first, a focus on using capital for stock buybacks, then discussed the potential for further M&A. Aon’s CEO and CFO both made the comments even as they gave updates on the December 2023 agreement to purchase wealth and retirement advisory NFP Corp. for $13.4 billion.

That deal will bring NFP’s 7,700 employees, including retirement advisers, and $2.2 billion in revenue to Aon. The transaction is still expected to close in mid-2024, executives said, but for financial purposes, the firm is “conservatively” forecasting its close in mid-2025.

In its Q4 earnings, Aon reported 7% cash flow growth from operations, reaching $3.44 billion, and a free cash flow increase of 5% to $3.18 billion. When asked about the potential for further M&A, CEO Gregory Case responded that the firm sees opportunities.

“We continue to look, as we think about deployment of capital, and obviously [stock] buyback is at the top of the list, given how undervalued we are, but we are looking across the board, even as we think about the closure on the NFP front,” Case said. “We see opportunities around the world, and our pipeline continues to be very strong.”

CFO Christa Davies elaborated, noting a separate acquisition made in March 2022 of actuarial technology and software firm RPC Tyche.

“We allocate capital based on return on capital, and we definitely—based on the free cash flow outlook in 2024 and the long-term—see we are significantly undervalued, and we will disproportionately allocate that free cash flow to buyback in 2024,” Davies said. “But we do have a great M&A pipeline, in areas like data analytics—if you think about the acquisition of Tyche, a fantastic acquisition in the area of data analytics—in areas like health. There are a number of areas that are front and center for clients … we’ll continue to look at everything, and there’s certainly some terrific opportunities out there. But we’ll certainly continue to be very disciplined on return on capital.”

Davis noted, in response to a separate question, that the firm expects the NFP acquisition to “accelerate” the firm’s long-term free cash flow, adding $300 million in 2026 and $600 million in 2027.

Aon reported that its wealth solutions business, which works with employers, fiduciaries and investment officers, saw 5% growth in Q4, reflecting “strong growth in retirement, which includes growth from ongoing pension risk transfer projects and work to help clients address changing regulatory requirements.”

The division currently has $4.4 trillion under advisement, with the NFP deal intended to access the middle market in part by leveraging Aon’s distribution network.

“We are incredibly excited about both the top and bottom growth potential for NFP, given our complementary businesses and expected synergies,” Case said on the call.

NFP will continue to operate as an independent company from Aon, with Doug Hammond remaining its chairman and CEO.