Fitch warns Aon over debt leverage from NFP purchase
Global brokerage Aon was put on negative outlook by the Fitch ratings agency following announcement that Aon would by mid-market rival NFP in a $13.4 billion cash and equity deal.
“The Negative Outlook reflects heightened risk from meaningfully higher leverage expected leading up to and post the NFP acquisition,” analysts wrote. Ratings could stabilise at 'BBB+' if Fitch believes there is a high likelihood of EBITDA leverage coming back in-line with the mid-2.0x range within 12-24 months of the deal's closing.
The warning from Fitch comes just days after Aon said it will buy the privately-held mid-market broker and benefits group from the firm’s leading financial investors in deal for which Aon will raise $7 billion in new debt to pay the cash portion of the deal.
Fitch expects estimated EBITDA leverage upon the deal's closing to hit the mid- to high-3.0x range, “well above” Fitch's 2.75x negative sensitivity and the company’s current run-rate in the mid-2.0x range.
Fitch analysts tip their hat to management vows to deleverage post-deal and the firm's history of “relatively conservative” balance sheet management, but warns that “meaningful risks remain with a deal of this size that could prolong deleveraging.”
NFP brings $2.2 billion of 2023 revenue to Aon and a track record of 14% annual growth, including 6% organic, Aon said of the deal. The purchase is expected to be earnings-dilutive for Aon in 2025 including from some $400 million in one-off transaction and integration costs, then turn earnings-neutral in 2026 as synergies kick-in.
Revenue synergies are seen starting at $80 million in 2026 and hit a long-term run rate above $175 million from 2027, Aon said. Cost synergies begin at $30 million in 2026 and ramp up to over $60 million after 2027.
Beyond the deal at hand, Fitch still likes Aon for its market position, business model and financial flexibility, analysts reminded.
In the announcement, Fitch affirmed Aon's Long-Term Issuer Default Ratings (IDRs) at 'BBB+' and the Short-Term IDR for Aon Corporation and Aon Global Holdings plc and CP ratings at 'F2'. Fitch also affirmed the company's senior unsecured notes at 'BBB+'.
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