Case: Aon in position of strength after best organic quarter in almost two decades

Aon CEO Greg Case has said the firm is moving forward from the breakdown of the Willis Towers Watson (WTW) transaction with a proven platform and operating from a position of strength after delivering organic growth that was its strongest in almost two decades.

He said strength and momentum in the business had been demonstrated by client feedback and colleague engagement scores at or approaching their highest levels for the past decade.

“Our colleagues are delivering client retention and net new business generation across all solution lines, driving 8 percent organic revenue growth over the first half and 11 percent organic revenue growth this quarter, our strongest performance in almost two decades,” he said.

Case said that drivers behind the proposed combination when it was announced are arguably more important now.

“The world is becoming more volatile, and clients need a partner capable to accelerate innovation on their behalf,” he said, pointing to the impact of the pandemic, the rise of state-sponsored cyber hacks, European floods, US wildfires and the challenges globally of working remotely.

And he said the events of the past 16 months have honed the power of the Aon United operating platform and the firm’s ability to work together to deliver new sources of value to clients.

“Over this time, we crystallised our operating model and cemented our one firm mindset. We’ve uncovered countless new growth, investment and efficiency opportunities. And at this point, we’re better connected across our firm with all the value of this work and none of integration distractions,” he said.

Commenting further on the termination of the WTW deal, said the primary thesis behind the combination remained “exceptionally strong”, and had been strengthened by the pandemic.

He highlighted the regulatory momentum in almost all other jurisdictions, as the deal reached an impasse with the US Department of Justice.

“We could have completed the deal in a couple of ways, but we made the choice to reject what we believe were two unacceptable options.

“One was the remedies, and we could have completed the deal through remedy just like we did in Europe, but it wouldn’t have been the right answer for us … it would have damaged our client-serving capability and stifled innovation.

“The second option, equally unappealing, was litigation. We had an exceptionally strong hand from our view, but the timeline pushed the deal into 2022 … and we’re just not going to wait in a holding pattern well into 2022 to have this resolved,” Case said.

Mid-single-digit or greater organic growth

Aon reported overall organic revenue growth of 11 percent for the quarter driven by mid-single-digit or greater organic revenue growth from every solution line.

That included 14 percent in Commercial Risk Solutions and 9 percent in Reinsurance Solutions.

For the first half 8 percent organic growth reflected mid-single-digit or greater organic growth from four out of five segments of the business.

There was also double-digit growth in the more discretionary portions of its portfolio, including transactional liability, human capital and project-related work in commercial risk solutions.

Highlighting strong global macroeconomic conditions in the quarter, and the outlook impact from virus and vaccine rollout, the potential impact of the Delta variant, as well as government stimulus and overall GDP growth, Case said the firm is expecting mid-single-digit or greater organic growth for full-year 2021 and over the long term.

Q2 margin impacted by expense repatterning

Aon reported adjusted operating income for the second quarter that increased by 11 percent to $746mn, or by 14 percent to $2.07bn for the first half of the year.

Adjusted operating margin contracted by 100 basis points to 25.8 percent, however as the firm pointed to the negative impact of “repatterning” expenses that had previously been revealed in Q1, with $135mn of expense moving from Q4 to Q2.

Excluding that impact, the adjusted operating margin would have expanded in Q2 by 370 bps, and by 250 bps for the first half of the year, instead of the reported 40 bps expansion to 32.2 percent.

M&A of all shapes and sizes

On the call, Case was asked about the impact of the experience of the last 16 months on Aon’s M&A appetite and whether it would now focus on smaller deals.

The executive said that the firm’s positive performance continues to translate revenue into free cash flow and the ability to grow that cash flow.

“With that cash it really comes [down to] how we invest and it comes back to return on invested capital. So we’re always going to take steps that actually maximize invested capital with cash-on-cash return.

“We have tremendous organic opportunities, inorganic opportunities of all shapes and sizes, and are very much looking forward to driving shareholder value, applying the cash in the appropriate way,” he said.