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By ERIN GAZICA, a freelance writer from Pottstown, Pa.

Aon's acquisition of the Jericho, N.Y.-based specialist construction insurance broker Allied North America, in a deal estimated at $154 million, is a win for both sides, according to one market analyst.

Whereas Aon is dominant in New York and Boston, Allied has a greater presence in the East beyond those two cities, as well as successful operations in Atlanta and Miami.

In addition, the purchase was one of the few ways for Aon to grow, given the continuation of the soft pricing environment and the falloff in construction projects due to the slowdown in the real estate sector, said Shields.

"Organic growth in the United States has been very difficult for brokers this year," he said.

GOOD FOR ALLIED TOO

For Allied, a highly respected competitor in the eyes of Aon, the deal represents a shot in the arm. The construction market had made life more difficult for the specialty broker in recent months, though the slowdown was far from life-threatening, according to Shields.

The acquisition is a signal that more M&A activity is to come, as 2010 shows little sign of any price hardening, added Shields.

"They have been looking to grow in other ways, so we'll be seeing the big brokers start to pick up the smaller brokers," he said.

Although terms of the transaction were not disclosed, a Citigroup estimate pegged the deal at $154 million. Allied's brokerage business generated about $88 million in revenues in 2008, according to Citigroup's report.

Compared with last year's purchase of reinsurance intermediary Benfield, the Allied acquisition is small, but it will boost Aon's construction and surety business since Allied has exposure to projects created by stimulus spending.

Aon plans to announce regional appointments for its Construction Services Group in the near future. In the meantime the executive committee is comprised of: Peter Arkley, chairman and CEO of Aon Construction Services Group and the broker's global construction business; Bill Marino, president of the global construction business and vice chairman of the Construction Services Group (previously chairman and CEO, Allied North America); Henry Lombardi, executive vice president and global broking officer for the group (previously chief operating officer at Allied); Kevin White, COO and president of the U.S. Construction Services Group; Geoffrey Heekin, EVP of surety with the group; and Ken Caldwell, EVP of wrap-ups and global sales.

COURTED FOR YEARS

"They've been a tough competitor over the years, one of the toughest. And now we're very happy to have them with us," said Arkley.

"There might be one or two areas where we overlap a bit, but I think the leadership is really clear in those areas," Arkley also said. "So we don't anticipate any integration issues at all."

Arkley added that he'd courted Allied Chairman Bill Marino at various times during their 20-year business relationship.

Chicago-based Aon, the world's No. 2 broker in terms of 2007 revenues, and Allied have both broken into the international construction market over the last few years, and Arkley said the recession provides an opportunity to break into new markets in Latin America, the Middle East and China.

"All of those areas are regions of the world where we've spent a significant amount of time over the last couple years," Arkley said. "Despite the economic downturn we still see that those are very viable markets going forward."

Arkley, who estimated the global construction industry at about $6 trillion, hoped the industry would pick up again by the end of next year.

"We're starting to see the construction business pick up on the civil side in the United States," said Arkley. "We think that maybe we'll have six months to a year of a relatively soft market, but we really do believe that now is the time to double-down globally."

On paper, at least, Aon's Allied acquisition is a "match made in heaven," said Arkley.

December 9, 2009

Copyright 2009© LRP Publications