In one of the largest insurance acquisitions in recent memory, Aon announced on Monday that it would purchase rival USI Insurance Services from private equity company KKR for $17 billion.
In the highly fragmented insurance brokerage industry, mega buyouts have become increasingly common in recent years as companies become more ready to pay top cash to strengthen their competitive advantage and market presence.
The transaction demonstrates Aon’s ambitions to increase its market share in the sizable and rapidly expanding middle-market insurance industry in the United States, which serves mid-sized enterprises.
According to Greg Case, CEO of Aon, “USI will significantly improve our middle-market footprint and expand access for our firm in the E&S (excess & surplus) segment. “One of the commercial insurance sectors in the United States that is expanding the fastest is the E&S market.
Over one-third of direct written premiums for commercial property and casualty in the United States are attributed to the middle-market group, which is estimated to be worth over $40 billion.
“There are more opportunities to meet the increasingly complex needs of these (middle-market) companies, which are an important engine of the economy,” Case told investors.
In addition to strengthening Aon’s health, talent, and human capital advising services, the USI deal expands on Aon’s $13 billion purchase of middle-market property and casualty broker NFP in 2024.
Early trading saw a 6% decline in Aon shares. As of the previous close, the stock is flat this year.
USI is an insurance brokerage and consultancy company that was established in 1994 and provides services for property and liability, employee benefits, personal risk, programs, and retirement.
With over $3 billion in revenue annually, it has grown from a single office to become the tenth largest insurance brokerage in the United States.
Other recent huge transactions in the insurance brokerage industry include the $13.5 billion acquisition of AssuredPartners by Arthur J. Gallagher and the almost $10 billion purchase of Accession Risk Management by Brown & Brown, both of which were completed last year.
One of the biggest insurance brokers in the world, Aon serves customers in more than 120 nations by guiding them through ever-increasing complexity and volatility.
It is predicted that the USI purchase will close in the fourth quarter of 2026 and increase Aon’s adjusted profit in 2028. As it prioritizes debt repayment, Aon does not anticipate short-term share buybacks and intends to finance the transaction through debt.
Aon’s president and global CEO of its middle-market platform will be USI CEO Mike Sicard.
ANOTHER MASSIVE EXIT FOR KKR
While many private equity firms struggle to sell portfolio companies, the USI deal is the most recent in a string of investment exits from KKR and several major competitors. In KKR’s history, the second quarter had the highest monetization.
The sponsor market is becoming more divided, with larger agreements being completed more easily, according to Wall Street experts.
In 2017, KKR and the Canadian pension fund Caisse de Réserve et Placement du Québec paid $4.3 billion to acquire Valhalla, a USI based in New York.
Since then, KKR has increased its ownership of the company to become the biggest stakeholder in USI. The middle-market broker’s income almost tripled when it was owned by KKR.
The transaction, according to Piper Sandler analysts, was a “success story” for KKR’s strategic holdings section, which invests its own funds as opposed to the conventional private equity strategy that uses funds from other investors.
According to Piper Sandler, the transaction “delivers a meaningful return on original invested capital” and supports KKR’s management’s claim that capital returns to investors are “accelerating despite external market skepticism around PE monetization activity broadly.”
KKR said the transaction represents a 3.4-fold return on the capital spent during the course of its investment in USI and about a six-fold return on its investment in 2017. KKR is anticipated to make an adjusted profit of almost $2 billion from the purchase.
Aon received advice on the deal from BofA Securities and Citi, while KKR received advice from Goldman Sachs, Insurance Advisory Partners, and Morgan Stanley.
