Blackstone Group agreed to acquire Aon's benefits administration and human resources business process outsourcing platform, including its U.S. defined contribution record-keeping business, in a deal of up to $4.8 billion.
Aon announced Friday it had signed a definitive agreement to sell the business for a cash consideration of $4.3 billion at closing to private equity funds affiliated with Blackstone, with an additional consideration of up to $500 million based on future performance.
The acquisition is set to be completed by the end of the second quarter.
A spokeswoman for Aon confirmed the Aon Hewitt U.S. DC record-keeping business formed part of the deal, but she said Aon Hewitt Investment Consulting is not part of the deal.
Aon Hewitt was the fifth-largest DC plan record keeper with $377.15 billion in assets as of Sept. 30, 2015, according to Pensions & Investments' most recent survey of record keepers.
With 5.74 million participants in its clients' plans, Aon Hewitt ranked fourth in the latest P&I survey. It had 450 clients, according to the latest available data.
MacKenzie Lucas, an Aon Hewitt spokeswoman, declined to provide updated record-keeping data and declined to comment on the size of the record-keeping unit in the context of the businesses being sold to Blackstone.
The record-keeping business has changed significantly in recent years with a string of consolidations, spinoffs and sales. Most action has been prompted by narrow profit margins and greater demands for services by DC plan sponsors, said Lew Minsky, president and CEO of the Defined Contribution Institutional Investment Association.
“Margins are really tight,” Mr. Minsky said. “There has been a myopic focus on fees in the retirement space. There needs to be a robust discussion on fees.”
Sponsors want more tools and services, added Ross A. Bremen, a partner for consultant NEPC. “Record keepers need to find ways to make the economics work,” Mr. Bremen said. “This may have been a high-margin business in the 1990s, but fees have become compressed in the last decade.”
The technology-enabled benefits and human resources platform, currently part of Aon Hewitt, serves about 15% of the U.S. working population across more than 1,400 companies, said a news release from Blackstone.
Gregory C. Case, president and CEO of Aon, said on a conference call Friday that for more than a decade executives have been on a “mission” to be the “pre-eminent professional services firm in the world … focused on risk, retirement and health.” The decision to sell the outsourcing assets is another step in this mission and allows the firm to focus on delivering advice and solutions related to risk, retirement and health, including delegated investment consulting, Mr. Case said.
Aon and the new stand-alone company will work together on behalf of shared clients and prospects, the news release said. Chris Michalak, currently global chief commercial officer at Aon Hewitt, will become CEO of the new stand-alone business.
“The addition of Hewitt to the Aon family in 2010 was a great, great catalyst for us that reinforced our efforts around retirement and health among other areas, and we've really incorporated those capabilities and continued to strengthen and build Aon,” Mr. Case said Friday, according to a transcript of an earnings call with analysts.
“And all you're seeing today is yet another opportunity to step back and say 'where is the best place for us to put capital (and) how can we do it most effectively to reinforce the same strategy,'” Mr. Case added. “That's exactly what we're able to do today as we announced this divestiture.”
Citigroup, Credit Suisse and SMB Capital are financial advisers to Blackstone regarding the transaction. Kirkland & Ellis is legal counsel to Blackstone.
Morgan Stanley is financial adviser to Aon, and Sidley Austin is legal counsel.