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Aon Acquisition Antitrust Fight Spotlights ‘Big Customer’ Market

June 21, 2021, 5:25 PM

The Justice Department’s suit to block Aon Plc‘s $30 billion proposed acquisition of Willis Towers Watson Plc raises the question of whether servicing large, multinational companies for their insurance demands is a market distinct enough to warrant antitrust protection.

Aon and Willis Towers Watson, the second and third biggest firms in the global insurance brokerage business, are part of the “Big Three” alongside leading player Marsh & McLennan Cos., the DOJ alleged in its June 16 antitrust complaint.

The proposed acquisition would reduce the large-customer market to a “Big Two,” the DOJ’s Antitrust Division warned. The “Big Three” are the only firms with the resources to serve multinational or Fortune 1000 companies, it said in its complaint.

“If you can tell the judge that this is a 3-to-2 merger, it’s a slam dunk,” said Robert Litan, an antitrust lawyer at Korein Tillery and a former DOJ antitrust official. “The entire ballgame is how you define the market.”

This case is being watched for how a large client market within insurance brokerage can be defined and what its boundaries look like. The DOJ’s antitrust enforcement also could result in further divestitures from Aon and Willis that forge and empower a new competitor to regularly service multinational clients.

The Justice Department has to define the market that it’s trying to protect. But Aon and Willis will claim there is no separate, “big customer” market, Litan said. Instead, Aon has said the acquisition will help them combine strengths to better serve all clients in an increasingly volatile world.

The DOJ’s action “reflects a lack of understanding of our business, the clients we serve and the marketplaces in which we operate,” Aon and Willis said in a June 16 statement.

Defining the Market

Insurance brokers, which match insurers and plans to businesses, have rapidly consolidated over the last few decades to bring specialized services to a wider array of customers and to increase commissions.

Now, the DOJ is alleging brokerage for the largest companies in the U.S. has become restrictive enough to be considered a separate market. The few large companies’ dominance is particularly evident when it comes to crafting health benefit plans and purchasing property and casualty insurance, according to the DOJ.

Working for big businesses requires a global network of offices, advanced data analytics, and a vast customer portfolio, all of which smaller firms can’t easily acquire, the DOJ said in its lawsuit.

The industry is also heavily based on relationships and reputation, according to Bloomberg Intelligence insurance analyst Matthew Palazola. Marsh, Aon, and Willis are “pretty much” the only three companies in the world with global standing, he said.

“There are a lot of insurance brokers. It’s a very fragmented market on the low end,” Palazola said. “But to get up to this level organically is kind of impossible.”

Fragmentation on the smaller-clients market could be a hurdle in the Justice Department’s argument for blocking the deal.

A plethora of smaller firms with specialized skills—both by region and by industry—means enough competition remains even if Aon and Willis combine, said Keefe, Bruyette & Woods analyst Meyer Shields. Not all big clients are global, he added.

“Is there another broker that can compete with Aon and Marsh everywhere? No, both before and after the Willis transaction,” Shields said. “But the question is, is there anywhere they can go where they wouldn’t face competition at all? The answer to that is certainly not.”

Settlement Ahead?

The DOJ lawsuit likely signals a breakdown in negotiations between Aon, Willis, and the Justice Department, according to Bloomberg Intelligence antitrust analyst Jennifer Rie. But the complaint “suggests a settlement could still be reached,” she said.

What remains to be seen is how much the DOJ will require Aon and Willis to divest in order for the department to green-light the acquisition, and whether the companies still would find their merger worthwhile after letting go of those assets.

Willis already has divested some assets to competitor Arthur J. Gallagher & Co. to satisfy European antitrust regulators. Gallagher’s CEO said the company is “wide open” to buying more assets from Aon and Willis in a June 17 call with analysts.

Gallagher doesn’t yet have the same global reach, but is the closest competitor of the “Big Three.” More divestitures to Gallagher wouldn’t create “a new Big Three yet, but it certainly positions them to get to that point,” Palazola said.

Selling more assets to Gallagher “probably alleviates the DOJ’s concerns in their entirety if they want a third global-ish competitor,” Shields said.

This case is the DOJ’s first lawsuit under the Biden administration to block a merger. And it fits the narrative that the new administration will undertake a more aggressive approach on antitrust.

“If Biden’s administration is going to be looking at remedies more carefully and require more, this is a good example of them practicing what they preach,” Rie said.

To contact the reporter on this story: Claire Hao at chao@bloombergindustry.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com

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