Drivers of Marsh & McLennan-JLT Deal: Too Much Capital, Not Enough Growth – Opinion


Too much capital and not enough growth. Faced with this ailment, the insurance sector is reaching for a costly remedy — M&A.

Marsh & McLennan Cos. Inc. Tuesday became the latest [insurance industry participant]* to splash the cash, agreeing to pay 4.3 billion pounds ($5.6 billion) for U.K. broker Jardine Lloyd Thompson Group Plc. The target rightly wasted no time in accepting.
JLT is a relative minnow in this global industry, according to Marsh & McLennan, Aon Plc and Willis Towers Watson Plc. Scale and diversification are competitive advantages. JLT risked further retention and is too small to lead the consolidation.

Marsh & McLennan’s approach came as early as this month, the pound bounced against the dollar for a low year. The advantage of a foreign exchange is insignificant given the low purchase price. The 19.15 pound share offer is a premium of 34 percent on JLT’s closing price on Monday. This may seem standard for purchases, but the stock was a mustache at the highest level of all time. This price is equal to 25 times of JLT’s estimated 2019 earnings.

The independent directors of JLT could not reverse this in a rational assessment of the company’s hope. He believes that Jardine Matheson Holdings Ltd., who holds 40 percent of the small shares, has accepted the offer.

Marsh & McLennan has some overlap with JLT in the UK, possibly contributing to the estimated cost savings of $ 250 million per year. These amounts, which are considered conservative, are equal to the net application cost of about £ 1 billion, ie the amount of the premium. Marsh & McLennan will therefore need a flawless implementation and some additional savings to ensure that this agreement creates value for its shareholders.

Jardine Matheson’s high price and support makes it difficult to break a door breaker. However, the drivers of this agreement also apply to others. The follow-up of SCOR SE, the reinsurer of the French co-insurer Covea Group, remained unresolved, and other major insurers had similar pressures to make M & A. The next agreement may not be too long.

* Editor’s Note: A slight correction to the statement of this sentence was made with the consent of the author.

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