Expanding its operations in Canada, last week Marsh & McLennan Companies Inc.’s (MMC - Analyst Report) leading Consulting wing – Mercer – announced its intention to purchase the pension wind-up operations of PricewaterhouseCoopers (PwC) in Canada. While the deal is expected to culminate by the end of Sep 2013, the terms remain undisclosed.
Administered by the Financial Services Commission of Ontario (FSCO), pension wind-up occurs when an employer files for bankruptcy its defined benefit or contribution pension plans or voluntarily decides to wind up the same. However, any kind of winding up of pension plans require an administrator.
Currently, the FSCO regulates about 8,350 employment pension plans, comprising over 40% of all registered pension plans in Canada. This offers ample long-term growth scope for Mercer in Canada. The deal will not only enhance Mercer’s client base but will also augment the professional team expertise.
Following the acquisition, the operations of PwC will be merged within Mercer’s pension wind-up business in Canada. The deal also complements Marsh & McLennan’s strategy of expansion into potentially strong markets through mergers and acquisitions.
Despitethe acquisition-related costs, Marsh & McLennan posted impressive results in first half of 2013 based on modest growth at Marsh, Guy Carpenter and Mercer; coupled with lower expenses that drove the top line and operating margin. Even the unutilized $1.0 billion revolving credit facility shall provide cushion to the company’s liquidity, thereby eliminating any significant risk from the company’s financial leverage.
Overall, as a leading global broker, Marsh & McLennan has a history of outperforming its peers banking on its size, diverse product offering, global presence and technical skill. We believe that the company has the ability to remain focused on this growth approach with a prudent management, thereby driving the earnings in the future as well.
While Marsh & McLennan carries a Zacks #3 Rank (Hold), other potential performers in the financial services industry include HCI Group Inc. (HCI - Snapshot Report), State Auto Financial Corp. (STFC - Snapshot Report) and Global Indemnity Plc (GBLI). All these stocks carry a Zacks Rank #1 (Strong Buy).