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Mega-Merger in HR Consulting World: Aon Acquires Hewitt Associates
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Another big shoe dropped today in the world of HR consulting as Aon Corporation announced it was acquiring Hewitt Associates in a nearly $5 billion cash and stock deal.
Hewitt, based in Lincolnshire, Illinois, is described in the press release announcing the deal as “one of the world’s leading HR consulting and outsourcing companies” and it certainly is all of that. Hewitt has more than 3,000 clients and 23,000 employees around the world, and its focus is on three primary areas: consulting, benefits outsourcing and HR business process outsourcing.
Chicago-based Aon, on the other hand, is the world’s largest insurance broker according to Bloomberg Businessweek, as well as one of the leading global providers of risk management services, insurance and reinsurance brokerage, and human capital consulting with 36,000 employees doing business through more than 500 offices in 120 countries.
This moves comes just a year after the announced mega merger of Towers Perrin and Watson Wyatt into the giant global consultancy Towers Watson in a $3.5 billion deal that was just closed in January of this year. That deal was touted by The Washington Post as creating “the biggest human resources consulting firm in the world,” with $3 billion in revenues and 14,000 employees, but no more.
You can now make Towers Watson the second biggest HR consulting firm in the world, because the combined Aon Hewitt will be bigger with revenues of $4.3 billion and 29,000 associates globally, with 49 percent from consulting services, 40 percent from benefits outsourcing, and 11 percent from HR business process outsourcing, “creating more resources for associates and more opportunities to distinctively serve clients with capabilities in greater than 120 countries around the world, according to the press release.
But why do the deal? It’s probably because Aon wants to get much deeper into HR consulting, a business that Hewitt has dominated. “It’s definitely going to make them a much more consulting operation than they were before,” according to Paul Newsome, an analyst with Sandler O’Neill & Partners LP in Chicago who talked to Bloomberg Businessweek. “There’s going to be some scale benefits. The other thing they get is better recognition. I think from a pure consulting perspective Hewitt is a better name than Aon.”
Following the close of the transaction, the new Aon plans to integrate Hewitt with its existing consulting and outsourcing operations (Aon Consulting) and operate the segment globally under the newly created Aon Hewitt brand. Russ Fradin, chairman and chief executive officer of Hewitt, will serve as chairman and chief executive officer of Aon Hewitt, reporting to Greg Case, chief executive officer, Aon Corporation.
The deal is also a pretty good one for Hewitt shareholders. The aggregate price per share for the acquisition is valued at $50 per Hewitt share, which represents a 41 percent premium to Hewitt’s closing stock price last Friday (July 9, 2010), the last trading day prior to the announcement of the agreement. The aggregate fully diluted equity value of the transaction is approximately $4.9 billion, consisting of 50 percent cash and 50 percent Aon stock (based on the closing price of Aon common stock on Friday July 9). Hewitt shareholders will get $25.61 in cash and about 0.64 percent of a share in Aon for each Hewitt share.
The acquisition of Hewitt also comes as Aon is making a worldwide push for greater visibility.
Effective this week, Aon’s logo will adorn the Manchester United soccer jersey, replacing AIG as the key sponsor of the world’s most valuable sports franchise. According to Regis Coccia, editor of the trade weekly Business Insurance magazine, the Hewitt deal comes at an exceptionally good time, as Aon’s brand is about to get amplified on the world stage. “This is a really smart move for Aon to grow globally,” he said. “It can touch many businesses as a consultant, probably more so than its core business as a risk adviser, then leverage those other businesses to a broader client base.”
All of that may be accurate, but according to Aon’s Greg Case, the thinking behind the acquisition was more basic than that.
“This merger will give us a broader portfolio of innovative products and services focused on what we believe are two of the most important topics in the global economy today: risk and people,” he said.