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Acquisitions and Dispositions

9 Months Ended

Sep. 30, 2019

The Company’s acquisitions have been accounted for as business combinations. Net assets and results of operations are included in the Company’s consolidated financial statements commencing at the respective purchase closing dates. In connection with acquisitions, the Company records the estimated values of the net tangible assets and the identifiable intangible assets purchased, which typically consist of customer relationships, developed technology, trademarks and non-compete agreements. The valuation of purchased intangible assets involves significant estimates and assumptions. Refinement and completion of final valuation of net assets acquired could affect the carrying value of tangible assets, goodwill and identifiable intangible assets.

On April 1, 2019, the Company completed the JLT Transaction to purchase all of the outstanding shares of JLT. Under the terms of the Transaction, JLT shareholders received £19.15 in cash for each JLT share, which valued JLT’s existing issued and to be issued share capital at approximately £4.3 billion (or approximately $5.6 billion based on an exchange rate of U.S. $1.31:£1), and the Company assumed existing JLT long-term indebtedness of approximately $1 billion. The Company implemented the Transaction by way of a scheme of arrangement under Part 26 of the United Kingdom Companies Act 2006, as amended.

The Company believes the Transaction strengthens MMC’s leadership position in insurance and reinsurance broking, health and retirement. The addition of over 10,000 colleagues provides deeper industry expertise in almost every part of the Company. The Transaction also builds on MMC’s efforts to expand in faster-growing geographies and market segments, and facilitates investment in data and analytics.

The Risk and Insurance Services segment completed four acquisitions during the first nine months of 2019.


•	February – MMA acquired Bouchard Insurance, Inc., a Florida-based full service agency and Employee Benefits Group, Inc., a Maryland-based independent insurance agency.


•	April – MMA acquired Lovitt & Touche, Inc., an Arizona-based insurance agency and The Centurion Group, LLC, a Pennsylvania-based retirement consulting, asset management and benefit plan advisory firm.

Total purchase consideration for acquisitions made during the nine months ended September 30, 2019 was $5,925 million, which consisted of cash paid of $5,859 million and deferred purchase consideration and estimated contingent consideration of $66 million. Contingent consideration arrangements are based primarily on earnings before interest, tax, depreciation and amortization ("EBITDA") or revenue targets over a period of two to four years. The Company also paid $37 million of deferred purchase consideration and $58 million of contingent consideration related to acquisitions made in prior years. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment until purchase accounting is finalized.

The following table presents the preliminary allocation of purchase consideration to the assets acquired and liabilities assumed during 2019 based on the estimated fair values for JLT and other acquisitions as of their respective acquisition dates:



Acquisitions through September 30, 2019
(In millions)	JLT			Other		Total Acquisitions
Cash	$	5,568		$	291	$	5,859
Estimated fair value of deferred/contingent consideration	—			66		66
Total consideration	$	5,568		$	357	$	5,925
Allocation of purchase price:
Cash and cash equivalents	$	353		$	6	$	359
Accounts receivable, net	714			5		719
Other current assets	143			—		143
Fixed assets, net	89			2		91
Other intangible assets	1,613			143		1,756
Goodwill	4,761			201		4,962
Right of use assets	382			—		382
Deferred tax assets	65			—		65
Other assets	493			8		501
Total assets acquired	8,613			365		8,978
Current liabilities	689			5		694
Fiduciary liabilities	1,275			—		1,275
Less - fiduciary assets	(1,275		)	—		(1,275		)
Long-term debt	1,044			—		1,044
Long-term lease liability	389			—		389
Pension, post-retirement and post-employment liabilities	248			—		248
Liabilities for errors and omissions	31			—		31
Other liabilities	349			3		352
Total liabilities assumed	2,750			8		2,758
Non controlling interests	295			—		295
Net assets acquired	$	5,568		$	357	$	5,925

The purchase price allocation above is based on estimates that are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments must be finalized during the measurement period, which for a particular asset, liability, or non-controlling instrument ends once the acquirer determines that either (1) the necessary information has been obtained or (2) the information is not available. However, the measurement period for all items is limited to one year from the acquisition date. During the third quarter of 2019, the Company made certain adjustments to the above JLT purchase price allocation, which included a reduction of identified intangible assets of approximately $50 million, adjustment of related deferred taxes, and an increase in goodwill of approximately $65 million. The third quarter of 2019 included a credit of $4 million to adjust previously expensed amortization based on the current purchase price allocation.

Items subject to change include the following:


•	Amounts of intangible assets, fixed assets, capitalized software assets and right-of-use assets, subject to finalization of valuation efforts;


•	Amounts for contingencies, pending the finalization of the Company’s assessment of the portfolio of contingencies;


•	Amounts for income tax assets, receivables and liabilities, pending the filing of the acquired companies' pre-acquisition income tax returns and receipt of information from taxing authorities which may change certain estimates and assumptions used; and


•	Amounts for deferred tax assets and liabilities pending the finalization of valuations of the assets acquired, liabilities assumed and associated goodwill.

The estimation of fair value requires numerous judgments, assumptions and estimates about future events and uncertainties, which could materially impact these values, and the related amortization, where applicable, in the Company’s results of operations.

The following chart provides information about intangible assets acquired during 2019:



Intangible assets through September 30, 2019 (In millions)	JLT		Other		Total		JLT Weighted Average Amortization Period	Other Weighted Average Amortization Period
Client relationships	$	1,511	$	136	$	1,647	13 years	12 years
Other	102		7		109		4 years	3 years
	$	1,613	$	143	$	1,756

During the second and third quarters of 2019, the Company purchased the outstanding non-controlling interests of several JLT subsidiaries for cash payments of approximately $75 million.

In January 2019, Marsh increased its equity ownership in Marsh India from 26% to 49%. Marsh India is accounted for under the equity method.

Dispositions

During the third quarter of 2019, the Company completed the sale of a U.S. Specialty business at Marsh and a U.S. large market health and defined benefit business at Mercer for cash proceeds of approximately $60 million. Also, on June 1, 2019, the Company completed its disposition of JLT’s global aerospace business for cash proceeds of $165 million and contingent consideration receivable of approximately $65 million, based on the aerospace business achieving certain revenue milestones in 2020. The aerospace business was divested as part of the European Commission's approval of the JLT Transaction.

Prior-Year Acquisitions

The Risk and Insurance Services segment completed twelve acquisitions during 2018.


•	February – MMA acquired Highsmith Insurance Agency, a North Carolina-based independent insurance brokerage firm.


•	March – Marsh acquired Hoken Soken, Inc., a Japan-based insurance agency.


•	May – Marsh acquired Mountlodge Limited, a Scotland-based independent insurance broker and Lorant Martínez Salas y Compañía Agente de Seguros y de Fianzas, S.A. de C.V., a Mexico-based multi-line insurance broker.


•	June – MMA acquired Bleakley Insurance Services, a California-based provider of employee benefits solutions; Klein Agency, Inc., a Minnesota-based surety and property/casualty agency; and Insurance Associates, Inc., a Maryland-based independent insurance agency.


•	August – Marsh acquired John L. Wortham & Son, L.P., a Houston-based independent insurance broker.


•	October – MMA acquired Eustis Insurance, Inc., a Louisiana-based insurance agency.


•	November – MMA acquired James P. Murphy & Associates, Inc., a Connecticut-based insurance agency.


•	December – MMA acquired Otis-Magie Insurance Agency, Inc., a Minnesota-based insurance agency, and Marsh acquired Hector Insurance PCC Ltd, a U.K.-based captive management company.

The Consulting segment completed eight acquisitions during 2018.


•	January – Oliver Wyman acquired Draw Ltd., a U.K.-based digital transformation agency.


•	March – Oliver Wyman acquired 8Works Limited, a U.K.-based design thinking consultancy.


•	May – Mercer acquired EverBe SAS, a France-based Workday implementer and advisory firm; and Evolve Intelligence Pty Ltd., an Australia-based talent strategy firm.


•	June – Mercer acquired India Life Capital Private Ltd., an India-based investment advisor.


•	November – Mercer acquired Induslynk Training Services Private Ltd., an India-based talent assessment company, Pavilion Financial Corp., a Canada-based investment services firm and Summit Strategies Inc., a Missouri-based investment consulting firm.

Total purchase consideration for acquisitions made during the first nine months of 2018 was $661 million, which consisted of cash paid of $553 million and deferred purchase consideration and estimated contingent consideration of $108 million. Contingent consideration arrangements are primarily based on EBITDA or revenue targets over a period of two to four years. The fair value of the contingent consideration was based on projected revenue or EBITDA of the acquired entities. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment when purchase accounting is finalized. For the first nine months of 2018, the Company also paid $59 million of deferred purchase consideration and $76 million of contingent consideration related to acquisitions made in prior years.

Pro-Forma Information

The following unaudited pro-forma financial data gives effect to the acquisitions made by the Company during 2019 and 2018. In accordance with accounting guidance related to pro-forma disclosures, the information presented for current year acquisitions is as if they occurred on January 1, 2018 and reflects acquisitions made in 2018 as if they occurred on January 1, 2017. The unaudited pro-forma information adjusts for the effects of amortization of acquired intangibles and additional interest expense related to the issuance of debt related to the JLT Transaction. The unaudited pro-forma financial data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved if such acquisitions had occurred on the dates indicated, nor is it necessarily indicative of future consolidated results.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share figures)	2019		2018		2019		2018
Revenue	$	3,967	$	3,940	$	12,830	$	12,842
Net income attributable to the Company	$	306	$	181	$	1,445	$	804
Basic net income per share attributable to the Company	$	0.61	$	0.36	$	2.85	$	1.59
Diluted net income per share attributable to the Company	$	0.60	$	0.36	$	2.83	$	1.57

The unaudited pro-forma information presented in the table above includes adjustments for acquisition related costs, the change in fair value of JLT acquisition related derivatives, bridge financing costs and the early extinguishment of debt:


•	A reduction of costs of $4 million for the three months ended September 30, 2019.


•	An increase in costs of $662 million for the nine month period ended September 30, 2018. Of this amount, $173 million represented a reduction of costs for the nine months ended September 30, 2019, and the remainder was incurred in the third and fourth quarter of 2018.

The consolidated statements of income include the results of operations of acquired companies since their respective acquisition dates. The consolidated statements of income for the three and nine month periods ended September 30, 2019 include approximately $352 million and $848 million of revenue, respectively, and operating losses of $69 million and $51 million, respectively, for acquisitions made in 2019. The consolidated statements of income for the three and nine month periods ended September 30, 2018 included $36 million and $50 million,

respectively, of revenue and operating losses of $5 million and $7 million, respectively, related to acquisitions made in 2018.

The Company incurred acquisition related costs, primarily related to legal, investment banking and U.K. stamp duty tax of $4 million and $99 million for the three and nine month periods ended September 30, 2019, primarily related to the acquisition of JLT. These costs are included in other operating expenses in the Company's consolidated statement of income.