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Acquisitions and Dispositions

12 Months Ended

Dec. 31, 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. The Company estimates the fair value of purchased intangible assets, primarily using the income approach, by determining the present value of future cash flows over the remaining economic life of the respective assets. The significant estimates and assumptions used in this approach include the determination of the discount rate, economic life, future revenue growth rates, expected account attrition rates and earnings margins. 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 and purchased 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). The Company also 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 five other acquisitions during 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.


•	October – MMA acquired Benefits Reports Insurance Services, Inc., a Massachusetts-based independent insurance agency.

Total purchase consideration for acquisitions made during 2019 was approximately $5,927 million, which consisted of cash paid of $5,861 million and deferred purchase 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. During 2019, the Company also paid $43 million of deferred purchase consideration and $63 million of contingent consideration related to acquisitions made in prior years. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment when 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 for the Year-Ended December 31, 2019						Total Acquisitions
(In millions)	JLT			Other
Cash	$	5,568		$	293	$	5,861
Estimated fair value of deferred/contingent consideration	—			66		66
Total consideration	$	5,568		$	359	$	5,927
Allocation of purchase price:
Cash and cash equivalents	$	349		$	7	$	356
Accounts receivable, net	695			6		701
Other current assets	132			—		132
Fixed assets, net	89			1		90
Other intangible assets	1,545			134		1,679
Goodwill	4,912			212		5,124
Right of use assets	382			—		382
Deferred tax assets	66			—		66
Other assets	473			8		481
Total assets acquired	8,643			368		9,011
Current liabilities	708			9		717
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	375			—		375
Total liabilities assumed	2,795			9		2,804
Non-controlling interests	280			—		280
Net assets acquired	$	5,568		$	359	$	5,927

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 fourth quarter of 2019, the Company made certain adjustments to the above JLT purchase price allocation, which included an increase to goodwill of approximately $90 million, an increase to other liabilities, and decreases to net receivables, other assets and current liabilities.

Items subject to change include:


•	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 deferred tax assets and liabilities pending the finalization of valuations of the assets acquired, liabilities assumed and associated goodwill discussed below; and


•	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.

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 December 31, 2019 (In millions)	JLT		Other		Total		JLT Weighted Average Amortization Period	Other Weighted Average Amortization Period
Customer relationships	$	1,435	$	126	$	1,561	13 years	12 years
Other	110		8		118		4 years	4 years
	$	1,545	$	134	$	1,679

Subsequent to the JLT acquisition, the Company purchased the outstanding non-controlling interests of several JLT subsidiaries for cash payments of approximately $79 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.

Prior Year Acquisitions

During 2018, the Risk and Insurance Services segment completed 12 acquisitions.


•	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 8 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 2018 was approximately $1.04 billion, which consisted of cash paid of $910 million and deferred purchase and estimated contingent consideration of $133 million. Contingent consideration arrangements are based primarily on EBITDA and/or revenue targets over periods of two to four years. The fair value of the contingent consideration was based on projected revenue and earnings of the acquired entities. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment when purchase accounting is finalized. During 2018, the Company also paid $62 million of deferred purchase consideration and $91 million of contingent consideration related to acquisitions made in prior years.

Subsequent Event Transactions

During January 2020, MMA completed the acquisition of two independent insurance brokers, Momentous Insurance Brokerage ("Momentous") and Ironwood Insurance Services ("Ironwood"). Momentous is a California-based full-service risk management and employee benefits firm specializing in high net worth private client services and insurance solutions for the entertainment industry. Ironwood is an Atlanta-based broker that provides commercial property/casualty insurance, employee benefits, and private client solutions to mid-size businesses and individuals throughout the US.

At December 31, 2019, the Company owned approximately 34% of Alexander Forbes ("AF"). In January 2020, the Company announced that it would dispose of a substantial portion of its investment in AF in the form of two independent transactions. In February 2020, the Company, in a separate transaction, sold the shares not subject to the agreements above to an independent third party. The consummation of all three transactions will result in a total liquidation of the Company's investment in AF.

Pro-Forma Information

The following unaudited pro-forma financial data gives effect to the acquisitions made by the Company during 2019, 2018 and 2017. 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 2017 information includes 2017 acquisitions as if they occurred on January 1, 2016. The pro-forma information includes 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.



	Years Ended December 31,
(In millions, except per share data)	2019		2018		2017
Revenue	$	17,095	$	17,106	$	14,400
Net income attributable to the Company	$	1,866	$	1,302	$	1,498
Basic net income per share attributable to the Company	$	3.69	$	2.58	$	2.92
Diluted net income per share attributable to the Company	$	3.65	$	2.55	$	2.89

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, including $207 million of costs incurred in 2019 that were reflected in the 2018 pro-forma results presented above.

The consolidated statement of income for 2019 includes approximately $1.2 billion of revenue and an operating loss of $40 million related to acquisitions made during 2019. The consolidated statement of income for 2018 includes approximately $120 million of revenue and $2 million of operating income related to acquisitions made during 2018, and the consolidated statement of income for 2017 includes approximately $156 million of revenue and $19 million of operating income related to acquisitions made during 2017.

The Company incurred acquisition related costs, primarily related to legal, investment banking and U.K. stamp duty tax of $125 million for the year ended December 31, 2019, primarily related to the acquisition of JLT. These costs are included in other operating expenses in the Company's consolidated statement of income.

Acquisition-related expenses incurred in 2018 were $7 million.

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.

In September 2018, Marsh completed its sale of a risk management software and services business resulting in a pre-tax gain of $46 million, which is included in revenue in the consolidated statement of income.