Marsh & McLennan Companies Inc MMC

Marsh McLennan: Acquiring McGriff for $7.75 Billion

Marsh McLennan announced that it will acquire McGriff Insurance Services for $7.75 billion, with the acquisition funded by cash on hand and debt financing. McGriff is an insurance broker and offers additional risk management services. We like that Marsh McLennan is sticking within its core operations and don’t think this acquisition will dilute the company’s narrow moat. We believe the integration of similar deals in the past have gone well, which bodes well for this acquisition. The consideration does look a bit rich—with Marsh McLennan paying almost 6 times revenue, well above the price/revenue multiple implied by our fair value estimate for Marsh McLennan. The company will presumably be able to take out some costs, but we’re a bit skeptical this deal will prove value-creative in the long run. However, this acquisition is not large enough to materially impact our $179 fair value estimate, which we will maintain. We see shares as a bit overvalued, as we believe the market is overly focused on recent tailwinds.