Marsh & McLennan and its closest counterpart AON (NYSE: MMC)

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Investment Thesis Overview:

As shown here, MMC shows several clues as to the presence of an enduring trade gap. Its small-cap business and dominant market position, which implies relative pricing power, are strengths in an inflationary environment. Its performance for 2021 has been outstanding, with EPS up +20% as the fruits of its transformational acquisition in 2019 begin to appear.

The market for insurance brokers is relatively concentrated, at least compared to those servicing large commercial accounts. MMC has grown primarily through a disciplined acquisition strategy, providing an ‘exit’ to agency and private brokerage operations around the world. It consolidated a comfortable market share (measured by revenue and premiums placed) after the acquisition of JLT in 2019. Going forward, the brokerage market share appears to be largely fixed for the foreseeable future, as The failure last year of the no.1 and no.2 AON-WTW combination to remove regulatory barriers to competition concerns indicates little appetite for further consolidation.

Intuitively, brokers benefit from the scale of their networks. The greater the “reach” they have with end customers, the more attractive their placement capacity is to insurers. Similarly, the larger the investment volumes, the more attractive they are to risk managers. It is a relational business, relying heavily on personal relationships, based on trust and expertise. Customer accounts should then be sticky.

With that in mind, I want to compare the relative attractiveness of MMC against its closest rival, UK-based AON (AON), a company I also love but have never owned.


Size matters, as noted above, because network effects matter. These relative size comparisons also extend to attracting talented employees, an important differentiator in a relationship-based business such as this. Especially the size of these two compared to the rest of the major brokers. For example, in terms of revenue, MMC is superior to #3, #4, and #5 combined.

Marsh has the highest enterprise value of $97 billion compared to AON’s $80 billion. This is supported by higher revenue/EBITDA/net income ($20 billion/$5.5 billion/$3.1 billion) than AON ($12 billion/$3.9 billion). dollars/$1.3 billion) on a twelve-month basis.

These comparisons are not exactly apples to apples. Marsh’s numbers include its consulting business, and AON’s profitability was impacted in 2021 due to merger termination fees and related costs. Either way, the size and scale advantage belongs to Marsh.

Size advantage: MMC

Balance sheet:

Both companies have manageable debt levels. In the case of AON, debt has increased recently, as it has focused on rewarding shareholders with buyouts. An understandable desire after the setback of the failed acquisition attempt.

Net debt is $9.8 billion for AON and $11.4 billion for Marsh. Compared to their EV´s, net debt is slightly higher for AON (12.2% EV to 11.7%). Coverage rates are a little better for AON, given the lower rates in Europe.

Balance sheet benefit: none.

Profitability and returns:

MMC increased diluted EPS from $2.13 in 2012 to $6.13 last year. For its part, AON’s revenue of $2.99 ​​rose to $5.55 in 2021. However, revenue exceeded $8 in 2020 for AON, a year with no merger termination fees. Taking the $7 average (to smooth out the two outliers), earnings grew at a CAGR of 10%, which is slightly lower than Marsh’s 12%. These levels of growth are impressive provided they were achieved during a period of weak GDP growth and generally weak conditions in the insurance market.

Profit and growth advantage: MMC, by a hair’s breadth

Shareholder friendliness:

Dividend yields are low for both. Although 1.2% MMC is twice the meager 0.6% of AON, they won’t generate returns for a long time. This is one of those cases where it’s hard to decide whether a higher yield is better or worse for owners. Both companies have delivered very high returns on invested capital, raising hopes that the great retention of profits will continue for many years to come. Let’s focus instead on redemptions.

AON’s diluted shares outstanding in 2012 were 328 million and are down to 226 million by 2021, a 30% reduction. In contrast, MMC had 552 million at the start of the same period and ended with 513 million (only an 8% reduction). Additionally, AON has accelerated buybacks, albeit using debt, and Marsh has not bought back significant amounts since 2019, opting to reduce leverage after the JLT acquisition.

Advantage: AON


In a word, ouch. Companies with these goods are rarely cheap. However, if EPS growth continues to grow at double-digit rates, a prospect that is not hard to imagine given that i) they have both achieved this over the past decade and ii) the insurance markets are tougher than in recent years; there is no reason for multiples to compress.

screenshot SA peer review screen

Evaluation Metrics (Looking for Alpha)

The market unsurprisingly assigns similar valuations to the two companies. MMC’s valuation looks a bit less stretched, especially considering the price to sales, where the multiple is around 25% lower. Ignore BV ratios. Book value becomes meaningless due to ongoing buyout activity that decimates book equity while harming no one. As is particularly the case for AON.

Data by YCharts

Marsh has and should continue to post a slightly lower multiple given its consulting business which is seeing lower margins. On the other hand, this activity is less exposed to the conditions of the insurance market and can offer greater stability of results compared to AON.


If it wasn’t for the evaluation, this race is too close to call. Given the valuation, I tend to favor Marsh due to its relatively low multiples. I warn you, this may be due to an unavoidable endowment effect, as I have owned it for over five years. Perhaps the main point here is that both are fantastic companies, with good prospects despite inflation, and seemingly growing moats.

By investing in shares, we have the advantage of being able to choose not decide. It’s nice to have both. Especially when it comes to market share leaders in relatively concentrated industries, why not? In a somewhat similar situation, I own shares of both S&P Global Inc. (SPGI) and Moody’s (MCO). These two are another pair of moat builders with pricing power to spare…and a story for another time.

In closing, with the consolidation race seemingly over (for now at least), the focus should return to small add-on acquisitions, organic growth and shareholder returns. All of this is happening against a backdrop of improving GDP growth, tougher insurance markets and new categories of risk and service opportunities around cyber/climate etc. It should be a profitable time to be a long-term owner of either (or both!).

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