Acquisitions and Dispositions

6 Months Ended

Jun. 30, 2020

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.

The Risk and Insurance Services segment completed four acquisitions during the first six months of 2020.

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January – Marsh & McLennan Agency ("MMA") acquired Momentous Insurance Brokerage Inc., 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, and Ironwood Insurance Services, LLC, an Atlanta-based broker that provides commercial property/casualty insurance, employee benefits, and private client solutions to mid-size businesses and individuals across the U.S.


•	April – MMA acquired Assurance Holdings, Inc., an Illinois-based full service independent brokerage agency providing business insurance, employee benefits, private client insurance, and retirement services to businesses and individuals across the U.S.


•	June - MMA acquired Nico Insurance Services, Inc., a California-based agency providing employee benefits solutions to groups and individuals.

Total purchase consideration for acquisitions made during the six months ended June 30, 2020 was $737 million, which consisted of cash paid of $576 million and deferred purchase consideration and estimated contingent consideration of $161 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 $27 million of deferred purchase consideration and $78 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 2020 based on the estimated fair values for the acquisitions as of their respective acquisition dates:



Acquisitions through June 30, 2020
(In millions)
Cash	576
Estimated fair value of deferred/contingent consideration	161
Total consideration	$	737
Allocation of purchase price:
Cash and cash equivalents	14
Accounts receivable, net	28
Fixed assets, net	16
Other intangible assets	277
Goodwill	466
Deferred tax assets	(43		)
Other assets	8
Total assets acquired	766
Current liabilities	19
Other liabilities	10
Total liabilities assumed	29
Net assets acquired	$	737

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 interest 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.

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 2020:

Dispositions

During the first six months of 2020, the Company sold certain businesses primarily in the U.S., U.K. and Canada for cash proceeds of approximately $93 million.

At December 31, 2019, the Company owned approximately 443 million shares of the common stock of Alexander Forbes ("AF"), a South African company listed on the Johannesburg Stock Exchange, which was accounted for under the equity method of accounting. In February 2020, the Company sold approximately 49 million shares of the common stock of AF, and in May 2020, sold an additional 193 million shares to third parties, leaving the Company with an investment of approximately 201 million shares of the common stock of AF at June 30, 2020. Upon completion of the May transaction, the investment in AF is accounted at fair value, with investment gains and losses recorded as investment income in the consolidated statement of income.

Prior-Year Acquisitions

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 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 the first six months of 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 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 six months of 2019, the Company also paid $23 million of deferred purchase consideration and $45 million of contingent consideration related to acquisitions made in prior years.

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 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.

Pro-Forma Information

The following unaudited pro-forma financial data gives effect to the acquisitions made by the Company during 2020 and 2019. 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, 2019 and reflects acquisitions made in 2019 as if they occurred on January 1, 2018. 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 June 30,				Six Months Ended June 30,
(In millions, except per share figures)	2020		2019		2020		2019
Revenue	$	4,189	$	4,395	$	8,891	$	8,963
Net income attributable to the Company	$	574	$	488	$	1,328	$	1,146
Basic net income per share attributable to the Company	$	1.13	$	0.96	$	2.63	$	2.26
Diluted net income per share attributable to the Company	$	1.12	$	0.95	$	2.60	$	2.24

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 six-month periods ended June 30, 2020 include approximately $48 million and $63 million of revenue, respectively, and operating income of $7 million and $11 million, respectively, for acquisitions made in 2020. The consolidated statements of income for the three and six month periods ended June 30, 2019 included approximately $486 million and $496 million, respectively, of revenue, and operating income of $16 million and $18 million, respectively, related to acquisitions made in 2019.

Intangible assets through June 30, 2020
(In millions)

Weighted Average Amortization Period

Client relationships