Eric Andersen: Bringing Aon’s “content” to the mid-market will drive NFP deal success

Aon president Eric Andersen has said the revenue synergies between his firm and NFP are where the “magic” and “success” of the tie-up will lie, as the broking giant brings its capabilities to bear to drive growth at the newly acquired middle market-focused platform.

Speaking to The Insurer in a wide-ranging interview after the deal’s close, Andersen highlighted the resources Aon can bring to NFP staff as a reason to believe there will be limited “breakage” in talent following the combination.

The transaction to buy NFP saw private equity firms Madison Dearborn Partners and HPS Investment Partners exit in a deal that gave the retail broker an enterprise value of $13bn and closed on 25 April.

In the interview, Andersen heavily emphasised some of the talking points the parties have touted publicly about NFP operating independently but connected, with its new parent company providing it with resources to help win more business in the middle market.

Andersen discussed what he described as NFP’s unique culture, driven by a management team led by CEO Doug Hammond that has been together for over two decades.

“I think it's going to be a great fit and it helps us with ‘the independent and connected’ because it's a different market segment,” Andersen observed.

“The way they built the company, the way they work the culture – we want to connect on content where they [might] need cyber, or they need industry help, they need energy help – or whatever they need,” he commented.

“We wanted to leave the front end of the business alone because it's been working for them,” Andersen explained.

Strategic deal drivers

When asked what the NFP deal means for his firm’s overall strategy and trajectory, Andersen discussed Aon’s emphasis on its risk capital approach of integrating reinsurance tools into its retail insurance business to provide clients with a “full suite” of services.

Andersen spoke of the increasing complexity of the underlying insurance business, with insurance costs having doubled in many cases during recent hard markets. He noted that insurance buyers now have more stakeholders at the table than just risk managers, with senior executives such as CFOs more heavily involved in the process.

“So now you've got a CFO in a room that is used to looking at models, who wants to understand trade-offs, risk financing, risk retention,” he pointed out when discussing the “risk capital” side, while emphasising Aon’s ability to tie in those services with those around human capital as well.

“It's how we have gone to market now for the last year. NFP just adds to that capability in the segment strategy,” he explained.

Andersen said that Aon hadn’t looked to invest in the middle market up until recently, because the firm didn’t think it could operate in that segment profitably.

“We were kind of watching what was going on in the space and if you can't get some leverage on a shared platform, ultimately, you can't get the value out of it,” he suggested.

“You might buy growth, but you're not going to buy profitable growth. And so it wasn't until we got Aon Business Services (ABS) to a spot where we actually thought we could capture value for the revenue dollar [that] we decided to make the move,” Andersen explained.

The executive added that ABS now enables the firm to efficiently handle smaller accounts at scale.

“Which has always been the hard part, because the volumes are lower, but the cost of people is the same. So how do you actually serve those clients in a way where you can give them quality service and quality product? You ultimately need some efficiency to be able to do that,” he commented.

“And when the roll-ups were happening, we just didn't think we could do it. And so, we didn't want to get bigger, but not [be] in as good a shape, so we passed on it. So we feel pretty confident that now we can do that as well.”

NFP ended exhaustive search

Andersen added that Aon then canvassed the sector for potential mid-market deals that could be scaled through “programmatic M&A” while adding a management team that understood how that segment operates, including with recruiting and working with shared capabilities.

“We wanted a management team that we could grow with [and] I think we got that with this group,” he said, adding that the NFP deal fits Aon’s strategy of “get[ting] more specific around risk capital, human capital and segments” and deploying capital in that business.

On synergies, Andersen was adamant that the NFP deal is “a growth play”, though acknowledged there would be some expense synergies tied to tech and real estate consolidation.

Andersen said that Aon would explore how to sell more of its benefits services among NFP’s client base, while also providing the acquired firm’s staff with more “content” connected to its existing industry verticals in areas like construction and energy.

“Now their ability to sell cyber, their ability to sell D&O, their ability to do voluntary benefits or our pharmacy coalition – the key for us is, how do you deliver that to them in a way they can digest it and bring it to a client in a way that works for them?”

To that end, Andersen said work done between the two firms in the last few months has revolved around how to bring Aon’s capabilities to the mid-market segment and deliver “content” that is “appropriately sized” for NFP.

“So I think the revenue piece of this is really where the magic – where the success – of this is going to happen, not the expense base,” he noted, while adding that Aon can provide NFP with in-house expertise that would previously need to be farmed out by retail brokers to wholesalers.

NFP, he said, also carried appeal to Aon versus other mid-market private equity-backed firms in that it had previously been publicly traded and has generally maintained public-company financial reporting standards, whereas other firms were less well prepared.

Andersen predicted that the next few years will see “a couple of these firms spend real energy getting themselves prepared” to be publicly listed, while also attempting to de-lever.

“The NFP guys always had in their mind that it could either go public, they could merge with a peer or they could go to a strategic,” he commented.

“I think [with] the time we spent with the NFP team around how we [can] make it better for their producing teams and their colleagues … I think they realised that if we do this right, the content that we can give their colleagues actually allows them to be better at their job,” he noted.

In addition to doing better work on behalf of clients, the deal with Aon also gives NFP staff “a final home”.

“So it's not moving and then moving again, and knowing at some point, it's either going to get sold to a strategic or you have to go through an IPO process or a merger at some point,” Andersen explained.

“Getting to a final place, but also with content that allows them to do more with their clients, that was the tipping point,” he said, on how the Aon-NFP deal came together.

Breakage

Andersen also discussed the potential for any talent or client breakage tied to the transaction – as is often the case with big M&A deals – and pushed back on any perception that there’s much difference between the Aon and NFP cultures.

“I don’t think the cultures are all that different. They are very client-centric and we think of ourselves as being client-centric and try hard to be,” he commented.

“We have this saying internally, ‘you're either serving a client or you're serving somebody who's holding a client’,” as he said it is key to “keep the client in the middle”.

“They do the same. They've got this ‘One NFP’ strategy where they're trying to work together across [the firm] and our Aon United strategy, so I think on the surface, we were trying to go to the same place,” he added.

He elaborated on the “independent and connected” tagline Aon and NFP have used to describe the deal, saying that NFP staff would still be able to service their clients independently as they’ve done in the past, but that by being “connected” they can leverage Aon’s capabilities.

Rather than just assume how Aon can best help NFP staff succeed, Andersen said his firm would let NFP clients dictate where they currently have the greatest need.

“Let's see what the client demand is, and we'll build the paths to make sure they get the access but [let’s] open it up so that we can see how this goes,” he explained.

“But in a way where they're not worried that Aon’s coming in over the top and all of a sudden what they loved about NFP is gone. And so we're very cognisant of the need to keep that culture for them alive,” Andersen added.