2023 brokerage revenue: $15.28B
Percent increase: 23.2%

Aon PLC further cemented its position as the world’s second-largest brokerage this year by purchasing NFP Corp., significantly increasing its middle-market business.

The $13 billion acquisition of what was the 13th-largest brokerage of U.S. business, which closed in April, is expected to lead to more middle-market acquisitions by Aon and could boost its organic growth, observers say.

Aon announced the deal Dec. 20, near the end of a sometimes challenging year for the brokerage as it dealt with the fallout of alleged fraud at an obscure reinsurance brokerage it did business with. 

Aon reported $15.28 billion in brokerage revenue in 2023, including NFP revenue on a pro forma basis, up 23.2% from the prior year. The brokerage reported 7% organic growth for 2023 and about 5% in the first quarter of this year, trailing some of its competitors.

The previous lack of a significant middle-market unit affected organic growth in North American property/casualty, and a stagnant market for transactional risk insurance also restricted growth, said Eric Andersen, president of Aon.

The NFP deal, completed a year earlier than initially forecast, added about $2.2 billion in mainly middle-market annual revenue to Aon. 

NFP will be “independent and connected,” to Aon, maintaining the NFP name while having access to Aon’s specialty expertise and international reach and support, Mr. Andersen said. 

“It’s independent on the front end for the clients. It’s opening the Aon portfolio of capabilities to those clients and then trying to find synergies where it makes sense in the back office,” he said.

In addition, Aon will continue to make middle-market acquisitions through NFP, Mr. Andersen said.

The NFP deal also brings Aon a small amount of wholesale business. Aon and other large brokers exited the wholesale business 20 years ago. Over the past year, speculation about large brokers returning to the booming sector has increased.

“It’s less about, do we open a wholesaler or buy a wholesaler, as much as it is, ‘How do we actually think about that market, and how do we use it in a way that is better for our clients than we do today?’ So, we're looking at it,” Mr. Andersen said.

When Aon announced the NFP purchase, it estimated it would pay 15 times earnings before interest, taxes, depreciation and amortization, but the early closing affected that calculation, and some observers suggest it paid several points more.

“We paid a fair price for a great asset,” Mr. Andersen said.

“The price was high, but I think that, for better or for worse, insurance investors tend to ignore that,” said Meyer Shields, Baltimore-based managing director at Keefe, Bruyette & Woods Inc.

“If NFP can bring to bear not just its own strengths but the strengths of the Aon organization, then they’ll win more business,” he said.

Investors viewed the NFP deal as expensive, said J. Paul Newsome Jr., managing director with Piper Sandler & Co. in Minneapolis. Strategically, however, it gives Aon a stronger foothold in the middle market, where acquisitions of smaller companies can be cheaper, and growth rates often are stronger.

Among other developments, in October, Aon announced its “3x3” restructuring plan, including technology investments, real estate consolidation and staff cuts. The company expects to incur $1 billion in costs related to the program. 

Last summer, Aon revealed its exposure to the Vesttoo scandal, which involved allegedly fraudulent letters of credit purportedly issued by China Construction Bank Corp. An Aon unit worked with Tel Aviv, Israel-based intermediary Vesttoo Ltd. on various reinsurance deals. In the fourth quarter of 2023, Aon took a $197 million charge for settlements related to the scandal. 

The Vesttoo scandal spotlighted a risk management mistake at Aon, but most large brokers occasionally encounter such issues, Mr. Newsome said. 

“There’s all sorts of crazy, unusual situations that happen all over the place, and that's just sort of the nature of risk,” he said.

“It was a mistake, and it cost them, and then you move on,” Mr. Shields said.

Aon also announced a significant management change this year, with long-time Chief Financial Officer Christa Davies announcing her retirement. Last month, Aon named Edmund Reese, chief financial officer of financial technology company Broadridge Financial Solutions Inc., as her successor.