Aon to shed units in bid to answer regulators’ issues

Aon PLC announced on June 3 plans to sell its U.S. retirement consulting business to Aquiline Capital Partners and its Aon Retiree Health Exchange business to Alight Solutions for a total of $1.4 billion.

An Aon spokesman confirmed that the deal does not include its outsourced chief investment officer or non-discretionary investment consulting businesses but declined to comment further beyond what was in the news release.

The company said in the release that these deals are being done to address certain questions raised by the U.S. Department of Justice in connection with Aon's planned merger with Willis Towers Watson PLC. Aon and Willis Towers Watson continue to work toward obtaining regulatory approval in all relevant jurisdictions.

WTW and Aon announced plans to merge in March 2020. The all-stock $30 billion deal aims to create a firm with a combined equity value of $80 billion.

"These agreements further accelerate our momentum to close our proposed combination with Willis Towers Watson," said Greg Case, CEO of Aon, in the release. "These are very capable teams that have demonstrated exceptional dedication to our clients and our firm. I want to recognize their contributions and reinforce that we are confident they will have similar opportunities with Aquiline and Alight."

Aquiline will acquire Aon's U.S. core retirement consulting, U.S. pension administration and the U.S.-based portion of Aon's international retirement consulting business. The core retirement consulting services include actuarial and administrative services, defined contribution plan management, pooled employer plans, risk management, plan benchmarking tools and advisory services for DC plan participants.

The deal with Aquiline will mean a change in employer for roughly 1,000 employees and include the following retirement advice services: Benefit Index and SpecSelect, Risk Analyzer, DBCalc and YPR, and Aon's recently launched pooled employer plan, which was announced a year ago and became available earlier this year.

Shedding the PEP comes a year after Paul Rangecroft, Aon's North America retirement practice leader, said in a news release announcing the plan's launch that the firm was "thrilled to enter this important market" and "pleased to provide this plan as a service to employers."

The transaction does not include Aon's non-U.S. actuarial, non-U.S. pension administration or international retirement businesses.

Industry observers said the deal between Aon and Aquiline makes sense for both parties, because, for Aon, it puts any antitrust concerns with its impending merger with WTW to bed, and provides Aquiline with a profitable business.

Donald Putnam, managing partner at investment bank Grail Partners LLC in San Francisco, said in an email that the WTW merger creates some overlapping businesses between the two firms, which means "there are only two choices for Aon."

They can either "combine the similar units and argue to the regulators that there is no lessening in competition," he said, which is "a fraught exercise, especially at the start of a new administration." Or, they can "divest the smaller of the competing units, (which) is what's happening here."

Data from Pensions & Investments show that with $3.44 trillion in assets under advisement as of June 30 and $181.4 billion in assets managed through its OCIO business, Aon is the second largest investment consultant and third largest OCIO.

Paul Newsome, managing director, equity research at Piper Sandler Cos. in Chicago, echoed this sentiment in an interview, saying that Aon is presumably divesting these businesses because "Willis has the business as well, so ... Aon and Willis are choosing which one to sell and which one to stay."

Domonkos L. Koltai, co-founder and partner of merger and acquisition advisory firm PL Advisors, New York, speculated that, in holding onto the OCIO business, Aon is keeping the more profitable business because it provides higher fee margins than the retirement consulting business.

"I would think in a broader consulting business, OCIO is the highest-margin piece," Mr. Koltai said. "The institutional consultant strategic plan in the last few years has consisted of moving as much of the business as possible from non-discretionary to OCIO and scaling up (through) consolidation."

Mr. Putnam added that "advice about financial choices ... involve conflicts. Clients and regulators are rightly obsessed with conflicts: Providers of 'advice' are buffeted by perverse incentives, formal and informal. Private equity ownership actually relieves these pressures and clarifies fiduciary duty."

Meanwhile, Mr. Newsome added that he imagines the transition of the retirement business "would be pretty seamless," and that "customers probably won't see much of a difference" in service.

"These are all presumably profitable businesses, and this is purely a financially beneficial business from Aquline's perspective," Mr. Newsome added. "There's been an enormous appetite among private equity firms for insurance brokerage and consulting businesses."

These deals follow Aon announcing in May plans to sell its pension consulting, pension administration and investment consulting businesses in Germany to consultant Lane Clark & Peacock as a means of securing clearance for its merger with WTW from the European Commission.

Mr. Newsome said, "There's still a question of whether there's more to come" in terms of more divestments.

A Willis Towers Watson spokesman declined to comment.