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Aon to Buy CoverWallet for Serving Small to Medium Businesses

Zacks Equity Research

Aon plc AON has agreed to acquire CoverWallet, the leading digital insurance platform for small and medium-sized businesses (SMBs).

The buyout of CoverWallet provides Aon, a broking giant, with access to the fast-growing, digital insurance market for SMBs, which is valued at more than $200 billion in premium.  The transaction is expected to close in the first quarter of 2020.

Aon will also get the opportunity to leverage CoverWallet's platform for developing and providing innovative services to client for enriching their digital experiences that support the company's Aon United growth strategy,

This purchase will be added to  Aon’s New Ventures Group, which was created last year. This group is developing a portfolio of cutting-edge client solutions on topics like intellectual property and public sector partnerships, which further accelerate net innovation on behalf of clients and expands the company’s addressable market.

In May 2019, Aon and CoverWallet entered into a commercial agreement to serve customers in Australia. This agreement allowed Aon to access the evolving small and medium enterprise (SME) digital insurance market segment worth $100 billion.

Acquisitions and partnerships form a key growth strategy at Aon and the company has sealed a number of buyout deals over the past three years. Strategic collaborations also boost Aon’s capacity, making it one of the largest insurance brokers. In 2017 and 2018, the company completed a total of 17 and eight acquisitions, respectively, to enhance its capabilities. We expect these transactions to augur well for Aon in the long run.

The company’s M&A activity is backed by its strong financial flexibility underscored by its solid free cash flow generation capability. In the first nine months of 2019, free cash flow grew 25%.

Shares of this Zacks Rank #3 (Hold) company have rallied 38.6% in a year, outperforming its industry’s growth of 32.7%.

 You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mergers and acquisitions in the insurance broking space are rife of late. Per OPTIS Partners' M&A database, there were 490 announced insurance agency mergers and acquisitions during the first three quarters of the year. It was the highest nine-month total achieved ever, beating the 481 deal wins announced in 2018. The data covers U.S. and Canadian agencies selling primarily property-and-casualty insurance, agencies selling both P&C and employee benefits and those selling only employee benefits.

Some of the insurance brokers, such as Marsh and McLennan Companies, Inc. MMC, Arthur J. Gallagher & Co. AJG, Brown & Brown. Inc. BRO, made several accretive acquisitions leading to business expansion.

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