Aon Plc agreed to buy NFP Corp. for about $13.4 billion in cash and stock as part of a push into the middle-market segment of the insurance brokerage and wealth-management business.
Funds affiliated with Madison Dearborn Partners and HPS Investment Partners are the sellers, the companies said in a statement Wednesday. The transaction will be funded by $7 billion of cash and $6.4 billion of Aon’s stock.
Aon expects to fund the cash portion with around $7 billion of new debt, according to a filing. It plans for $5 billion of it to be raised in 2024 and $2 billion raised when it completes the transaction. The new debt will span a range of maturities, subject to market conditions. NFP Chief Executive Officer Doug Hammond will continue to lead the business as an independent, connected platform within Aon, reporting to Aon President Eric Andersen.
Aon said it expects about $400 million in one-time transaction and integration costs. The combination is expected to dilute adjusted earnings per share in 2025, and break even in 2026. It will add to earnings starting in 2027, according to the statement. The deal is expected to be completed in the middle of next year.
The sale is welcome news for holders of the NFP’s high-yield debt. The company’s 6.875% bond due 2028 rose more than 8 cents on the dollar, making it Wednesday’s biggest gainer, according to Trace data.
“Every now and then Santa Claus visits the high yield market in the form of investment grade M&A,” David Knutson, senior investment director at Schroder Investment Management, said in an interview. “Not something you plan for, but it is a nice surprise.”
From Aon’s perspective, “investment-grade spreads are very compelling right now for issuers,” said Bloomberg Intelligence’s Noel Hebert, “so the funding market is as compelling as it’s been in a while.”
Similarly, the high-yield bonds of United States Steel Corp. rallied after Nippon Steel Corp., an investment-grade company, agreed Tuesday to buy the Pittsburgh-based firm for $14.1 billion.
However, the sudden wave of investment-grade M&A won’t necessarily last, said Knutson.
“The market has embraced the ‘soft landing’ narrative. This has fueled an ‘everything rally,’” said Knutson. “If future data doesn’t support this narrative, the market and buyers will lose their appetite for risk.”