Marsh Buys Alexander Forbes

Yesterday, Marsh & McLennan Companies Inc.’s (MMC - Analyst Report) leading insurance brokerage wing, Marsh Inc., announced the successful acquisition of the brokerage business of South Africa-based Alexander Forbes.

The intention to acquire Alexander Forbes was announced in September 2011, whereby Reuters had reported that the deal is valued at 809 million rand ($115.5 million).

As previously decided, Marsh’s acquisition presently includes Alexander Forbes Risk Services’ in South Africa and its associated operations along with risk operations in Namibia and Botswana. Alexander Forbes Risk Services’ business is already spread over 11 countries in Africa.

The acquisition of operations in the remaining eight locations of Africa is expected to be completed over the next few phases, which is likely in 2012. Particularly, operations of Malawi, Mozambique, Nigeria, Uganda and Zambia are expected to be acquired by the first quarter of 2012, post regulatory approvals. Moreover, the operations of Alexander Forbes will be aligned with Marsh Africa.

The deal complements the strategic growth goals of both Marsh & McLennan and Alexander Forbes. The collaboration with a globally leading insurance and risk broker will enhance Forbes' operational efficiencies and enable it to approach both individual and institutional clients of higher size in the African region, where Marsh Africa already holds a prominent place.

Meanwhile, the deal is expected to extend the size of Marsh Africa’s operations with Alexander Forbes’ deeper market penetration and expertise in insurance and risk management services.

This will thereby help in enhancing Marsh & McLennan’s presence in Africa by enabling it to penetrate into the Africa’s major business sectors, including mining and minerals, power, telecommunications, transportation, and construction. Moreover, infiltration in the dynamic middle market adequately complements the long-term growth strategies of the company to be a leading pan-African insurance broker.          

Management at Marsh & McLennan also views this spread in Africa as crucial given the ample growth opportunity that lay unexplored, which is equivalent to that of other rapidly developing Asian, Latin American and Eastern European regions.

Furthermore, after the successful asset dispositions of its redundant Kroll and Putnam units last year, such acquisitions bode well for the overall restructuring of Marsh & McLennan. While the company is able to concentrate on its core efficiencies, Marsh & McLennan’s unutilized $1.0 billion revolving credit facility along with expected tax benefits in the upcoming quarters shall provide cushion to the company’s liquidity. This will in turn eliminate significant risk on the company’s financial leverage.

The acquisition of Alexander Forbesis also crucial for new business production and client retention, which has been facing substantial declines due to the company’s antitrust litigation charges coupled with a soft pricing environment.

Overall, as a leading global broker, Marsh & McLennan has a history of outperforming its peers owing to its size, diverse product offering, global presence and technical expertise. Despite sluggish organic growth, the company still remains a dominant player in its industry, quite next to the leading Aon Corp. (AON - Snapshot Report). Additionally, Marsh & McLennan carries a Zacks Rank #3, translating into a short-term Hold rating and long-term Neutral stance.

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