Marsh & McLennan Acquires Hammond - Analyst Blog

Focusing on alternatives investment, yesterday Marsh & McLennan Companies Inc.(MMC) entered into a definitive agreement to purchase Hammond Associates, the third largest investment consulting company for endowments and foundations in the US, for an undisclosed amount. The deal is expected to close by the end of 2010 subject to regulatory approvals, although other terms are yet to be revealed.

Accordingly, post acquisition, Hammond will be merged with the operations of Marsh & McLennan's Mercer, the leading consulting, outsourcing and investment services unit of the company, and will together create additional investment capacities and consulting opportunities in the private wealth and health care markets.

With over 200 clients and 25 years of rich experience in the rapidly growing field of investment consulting, Hammond appears to be a good fit for boosting Marsh & McLennan's institutional fund consultancy. Moreover, with knowledge and risk management expertise of 120 professionals, Hammond can very well complement the hedge fund and alternatives research capabilities in which has become an area of interest for Mercer recently.

Further, after the successful asset dispositions of its redundant Kroll and Putnam units, the acquisition bodes well for the overall restructuring of Marsh & McLennan. While the company is able to concentrate on its core efficiencies, Marsh & McLennan's unutilized $1.0 billion revolving credit facility along with expected tax benefits in the upcoming quarters shall provide cushion to the company's liquidity, thereby eliminating significant risk on the company's financial leverage.

The acquisition is also crucial for new business production and client retention, which has been facing substantial declines due to the company's antitrust litigation charges coupled with a soft pricing environment.

Overall, as a leading global broker, Marsh & McLennan has a history of outperforming its peers due to its size, diverse product offering, global presence and technical expertise. Despite sluggish organic growth, the company is still a dominant player in its industry, quite next to the leading Aon Corp. (AON).

 

While the Guy Carpenter brand, holding a quarter of the market share, has been improving through cross-selling opportunities, new business production and high retention rates; Mercer's investment consulting and management wing continues to generate robust growth, contributing to the fundamental strength of the company. We believe a stable economy and improvement in the insurance cycle should help boost both the insurance brokerage and consulting business.

 
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