# Nvidia to Invest $3.5 Billion in Chipmaker MediaTek

An episode of [Bloomberg Intelligence](https://invisiblenetwork.ai/podcast/326301337), 31 Aug 2026, 22 min.

Audio: https://podtrac.com/pts/redirect.mp3/tracking.swap.fm/track/UVBrz8bN8aM2Xe47PEPu/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/7f534b8c-9e91-429a-b102-ae3c00090c6d/60ceb4ea-dc6b-4e8f-a3e8-b4b7010f3a95/audio.mp3?utm_source=Podcast&in_playlist=0ad812bf-fd15-4012-a18c-ae3c00090c76

Watch Paul and Scarlet LIVE every day on YouTube: http://bit.ly/3vTiACF. Bloomberg Intelligence hosted by Paul Sweeney and Scarlet Fu -Mandeep Singh, Global Head of Tech Research for Bloomberg Intelligence, discusses Nvidia investing $3.5 billion in MediaTek to deepen collaboration with the Taiwanese chipmaker. The investment will see MediaTek using Nvidia's NVLink Fusion and NVHBM technology to help components communicate more seamlessly in data centers. The agreement is part of Nvidia's effort to ensure the future of artificial intelligence is built around its hardware platform and standards. -Bailey Lipschultz, Bloomberg News Senior Equities Reporter, discusses Anthropic’s future IPO. Anthropic PBC’s IPO is expected to raise as much as SpaceX’s record $86.2 billion debut and is casting a long shadow over companies’ US listing plans. Some firms are finding it hard to get the attention of investors with the prospect of an Anthropic IPO imminent, and companies may decide to list before or after Anthropic to avoid competition. -Michelle Cortez, Bloomberg Senior Editor for Global Business, discusses Eli Lilly plans to buy Merida Biosciences for as much as $2.88 billion in cash to expand in autoimmune and allergic diseases. Merida is developing products that target auto-antibodies tied to diseases, including MER511, which is in early testing for Graves’ disease and thyroid eye disease. The deal is part of Lilly’s strategy to invest in technologies that can transform the treatment of diseases beyond obesity, with the company having announced more than $20 billion in deals so far in 2026. - Matthew Palazola, Bloomberg Intelligence, Senior Analyst, P&C Insurance, discusses KKR being set to reap a $3.3 billion windfall from its deal to sell USI Insurance Services to Aon Plc for $17 billion. The transaction will generate about $2 billion of adjusted net income for the private equity giant, according to a statement. The sale is expected to generate a 3.4 times return on KKR’s balance-sheet capital invested, and will help expand Aon’s middle-market business. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: Bloomberg Audio Studios.
[0:04] Speaker 2: Podcasts.
[0:05] Speaker 3: Radio.
[0:06] Speaker 4: News.
[0:09] Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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[0:19] Speaker 5: you get your podcasts or watch us live on YouTube.
[0:24] Speaker 3: Let's talk about big tech, NVIDIA in particular, because it's
[0:27] Speaker 3: investing $ 3.
[0:27] Speaker 1: 5 billion in media tech.
[0:30] Speaker 3: This is a Taiwanese chip maker, and this agreement broadens
[0:33] Speaker 3: a partnership between the two chip designers. It's part of
[0:36] Speaker 3: NVIDIA's future and effort to ensure that the future of
[0:39] Speaker 3: AI is built around its hardware platform and standards. NVIDIA's CEO,
[0:43] Speaker 3: Jensen Huang, spoke with our Ed Ludlow. Here's what he
[0:46] Speaker 3: had to say on this particular deal.
[0:48] Speaker 6: Well, this is not circular because, obviously, they do their
[0:52] Speaker 6: own business and we do our own business. And MediaTek's
[0:56] Speaker 6: already incredibly profitable, incredibly successful. They are the world's best
[1:02] Speaker 6: SOC maker. They make more SOCs than any company in
[1:06] Speaker 6: the world. It's a great pleasure for us to invest
[1:09] Speaker 6: in a technology company in Taiwan. It's a great pleasure
[1:12] Speaker 6: for us to invest in MediaTek. This is going to
[1:14] Speaker 6: turn out, of course, the investment is grounded on a
[1:18] Speaker 6: deep partnership that's going to be multiple years.
[1:22] Speaker 3: That was NVIDIA CEO Jensen Huang speaking earlier with our
[1:25] Speaker 3: Ed Ludlow.
[1:26] Speaker 1: Let's bring in Mandeep Singh now.
[1:27] Speaker 3: He is our Global Head of Tech Research here at
[1:30] Speaker 3: Bloomberg Intelligence. And Mandeep, I liked how the first thing
[1:33] Speaker 3: Jensen Huang said was, this is not circular. It's kind
[1:36] Speaker 3: of like he has to make that point out front
[1:38] Speaker 3: to everyone because there's so many concerns, maybe accusations, that
[1:42] Speaker 3: a lot of the investments and deals that NVIDIA makes
[1:46] Speaker 3: kind of goes round and round in this small little ecosystem.
[1:49] Speaker 4: Yeah, I mean, it has had an impact on Nvidia's stock.
[1:54] Speaker 4: They're not trading like everyone else in terms of earnings
[1:57] Speaker 4: or free cash flow multiples. So everyone right now is
[2:02] Speaker 4: critical of their circular financing. But look, in this case,
[2:05] Speaker 4: they want to expand the ecosystem. And for a company
[2:08] Speaker 4: that's generating over $ 200 billion in free cash flow, You know,
[2:13] Speaker 4: investing $ 3. 5 billion has changed right now in terms of
[2:18] Speaker 4: just what they could afford to do.
[2:20] Speaker 7: And there are benefits.
[2:22] Speaker 4: They did that with Marvell first, now with MediaTek. I mean, essentially,
[2:27] Speaker 4: anybody who is making an accelerator chip right now, NVIDIA
[2:31] Speaker 4: is saying, we provide the networking technology that can help
[2:35] Speaker 4: you scale up that chip into a much bigger chip.
[2:39] Speaker 4: kind of entity that can run these large inference workloads
[2:43] Speaker 4: that every large hyperscaler is doing. So from that standpoint,
[2:48] Speaker 4: interoperability is a good thing, whether it's Google TPUs or
[2:52] Speaker 4: their own chips, and that's why they are going to
[2:54] Speaker 4: all these suppliers here.
[2:56] Speaker 8: So real quick, just where is the market these days?
[3:00] Speaker 8: When you talk to institutional investors, where is the market
[3:03] Speaker 8: In terms of its view of these circular deals, is
[3:06] Speaker 8: it like it is what it is, we got to
[3:08] Speaker 8: deal with it, or it's a problem, I'm staying away?
[3:12] Speaker 7: What's the market thinking these days?
[3:13] Speaker 4: I mean, NVIDIA has just guided to over $ 650 billion
[3:19] Speaker 4: in annual revenue by next calendar year. So think of
[3:22] Speaker 4: the size of this market. Just one company, which still
[3:26] Speaker 4: has almost 80% share, in that accelerator chip space is
[3:31] Speaker 4: guiding to 650 billion. Then you've got Google GPUs and
[3:36] Speaker 4: AMD and you combine everything, you come up with at
[3:39] Speaker 4: least an $ 800 billion plus market that is growing 70%.
[3:44] Speaker 4: That's what Nvidia said. And it would have grown faster
[3:47] Speaker 4: if they had more supply. So that's what I think
[3:52] Speaker 4: everyone is focused on is at the end of the day,
[3:55] Speaker 4: there could be some pull forward because of this circular financing,
[3:59] Speaker 4: because Nvidia is giving them the money. But in the end,
[4:02] Speaker 4: this is still a very large market with a very
[4:06] Speaker 4: high growth rate. And I think everyone wants to cater
[4:10] Speaker 4: to that market. Okay.
[4:11] Speaker 3: So as much as it might look like Nvidia is
[4:13] Speaker 3: dominating everything with the deal making within its ecosystem, it's actually...
[4:18] Speaker 3: there's a lot of room for other companies to come in.
[4:20] Speaker 3: Having said that, NVIDIA's investment with MediaTek, who does that hurt?
[4:25] Speaker 1: What companies are kind of left out as a result
[4:29] Speaker 1: of this?
[4:29] Speaker 4: Not left out, but Google was planning to ramp up
[4:34] Speaker 4: beyond Broadcom with MediaTek. And so this is kind of
[4:38] Speaker 4: front-running Google to say, hey, Google, we will make sure
[4:41] Speaker 4: we lock every capacity that's out there, whether it's with
[4:45] Speaker 4: TSMC or with MediaTek or any FAB provider. And I
[4:49] Speaker 4: think this is NVIDIA flexing its balance sheet to say,
[4:52] Speaker 4: we can lock in any supplier that's out there that
[4:56] Speaker 4: could help Google to ramp up capacity.
[4:59] Speaker 7: Stay with us.
[5:00] Speaker 2: More from Bloomberg Intelligence coming up after this.
[5:06] Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
[5:10] Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
[5:13] Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
[5:16] Speaker 5: you get your podcasts or watch us live on YouTube.
[5:21] Speaker 3: Anthropic is going to be the big IPO that everyone's
[5:24] Speaker 3: waiting for sometime in the fall. We're thinking September, we're
[5:27] Speaker 3: thinking October. That's what Bailey Lipschultz has told us. He
[5:30] Speaker 3: is our senior equities reporter. He covers the capital markets
[5:33] Speaker 3: and he joins us now on the upcoming IPO.
[5:36] Speaker 1: So we're still thinking September, October?
[5:39] Speaker 9: Still thinking September, October, but if you just- understand how
[5:42] Speaker 9: IPOs work. For the company to price and debut in September,
[5:47] Speaker 9: it needs to publicly be on file by the Tuesday
[5:50] Speaker 9: after Labor Day. So that's like kind of a best
[5:54] Speaker 9: case scenario. If we believe our understanding when we talk
[5:57] Speaker 9: to bankers and people around the steel to be true,
[5:59] Speaker 9: they still haven't finalized their revolving credit facility.
[6:02] Speaker 7: That's a big step.
[6:03] Speaker 9: Bringing the other banks outside of the big four that
[6:06] Speaker 9: we've broken a lot of news around under the tent
[6:08] Speaker 9: is a big step.
[6:09] Speaker 7: And they also have to have.
[6:09] Speaker 9: An analyst day so the analysts can model out what
[6:12] Speaker 9: they're expecting with Anthropic. When you're at Goldman Sachs, if
[6:15] Speaker 9: you call up your sales desk and say, hey, I
[6:17] Speaker 9: want to talk to the analyst.
[6:18] Speaker 7: He has to have a model to be able to share.
[6:20] Speaker 9: So if you put all of those kind of pieces
[6:22] Speaker 9: into formation, you look at it and say, the fastest
[6:25] Speaker 9: probably is Thursday or Friday. But in reality, they've been
[6:28] Speaker 9: kind of dragging their heels with piecing together this revolving
[6:31] Speaker 9: credit facility. But once that takes place, it should move
[6:34] Speaker 9: pretty darn quickly.
[6:37] Speaker 2: Is there going to be a crowding out effect for
[6:39] Speaker 2: other deals, do you think?
[6:40] Speaker 8: Good question. I mean, it's going to take all the
[6:42] Speaker 8: oxygen and including a lot of the dollars out of
[6:45] Speaker 8: the marketplace. How's the street kind of thinking about this?
[6:47] Speaker 8: Because presumably after Labor Day.
[6:49] Speaker 7: There's a lot of companies that will want to go public. Yeah, no,
[6:51] Speaker 7: and we've already seen a few that have flipped publicly.
[6:53] Speaker 9: So smaller, lesser known deals, Agreco, Covault Power, obviously they're
[6:57] Speaker 9: both private equity. They're both kind of playing the AI angle.
[7:00] Speaker 9: But the big thing is if you're trying to schedule
[7:03] Speaker 9: a meeting with a long only, or if you're trying
[7:06] Speaker 9: to schedule a meeting with the sovereign wealth fund, these
[7:07] Speaker 9: aren't huge teams. They're not the millennium IPO pods that
[7:11] Speaker 9: are really playing all of these deals. So I've talked
[7:13] Speaker 9: to some sponsors, I've talked to some bankers, And that's
[7:16] Speaker 9: kind of been consternation. When you look at SpaceX, which
[7:18] Speaker 9: we saw back in June, we crunched the numbers, the
[7:22] Speaker 9: 14 notable deals to go public in the month before SpaceX,
[7:25] Speaker 9: so kind of racing to hit that pre-SpaceX window. Weighted
[7:29] Speaker 9: average loss is almost 10% from the offer price. You're
[7:31] Speaker 9: supposed to buy IPOs to make money, not lose money.
[7:34] Speaker 9: So when you look at the calendar, we have seen
[7:36] Speaker 9: companies flip public. We expect some to flip public this week.
[7:39] Speaker 9: That should open the opportunity to beat Anthropic out the door.
[7:43] Speaker 9: But you don't want to be on the road at
[7:44] Speaker 9: the same time. You don't want to be calling Wellington
[7:46] Speaker 9: asking for them to take time to talk to your
[7:48] Speaker 9: company if Dario is trying to make a visit. Yeah.
[7:52] Speaker 7: They'll be like, we'll get back to you.
[7:53] Speaker 10: Exactly.
[7:55] Speaker 3: Let's talk about another company, which a couple of years
[7:58] Speaker 3: ago was a big, big deal for young people.
[8:00] Speaker 1: Shein, kind of like fast fashion.
[8:03] Speaker 3: Shein Global Holdings, the shares fell as much as 14%
[8:07] Speaker 3: in Hong Kong gray market trading.
[8:08] Speaker 1: This is before the stock makes its debut in Hong.
[8:11] Speaker 11: Kong, right?
[8:11] Speaker 7: It'll make its debut tomorrow.
[8:12] Speaker 9: And again, this is a company that sold almost $ 2
[8:15] Speaker 9: billion worth of shares in the IPO last Market cap's
[8:19] Speaker 9: 26 billion. You mentioned just a few years ago, 2022,
[8:21] Speaker 9: they raised a private round around $ 100 billion.
[8:25] Speaker 7: So that is a huge drop off.
[8:26] Speaker 9: When you talk to investors who've met with the company,
[8:29] Speaker 9: the critique is, I'm paying a similar multiple for a
[8:32] Speaker 9: Zara or an H & M that I'm paying for
[8:35] Speaker 9: a company that hasn't seen growth, that has a lot
[8:38] Speaker 9: of political uncertainty and a lot of headwinds. There were
[8:41] Speaker 9: reports that they wanted to go public in the US,
[8:43] Speaker 9: then London, now they're listing in Hong Kong. There's just
[8:46] Speaker 9: so much uncertainty around the company. And again, it'll be
[8:48] Speaker 9: interesting to see when we see that formal trading. But
[8:51] Speaker 9: we've been really using over the last few weeks and
[8:53] Speaker 9: months this gray market to better inform what's going to
[8:56] Speaker 9: happen actually on exchange. And even if you just go
[9:00] Speaker 9: one to one or even half two to one, you're
[9:02] Speaker 9: still saying this is going to be something that trades
[9:04] Speaker 9: down pretty sharply.
[9:05] Speaker 7: So just real quick, 30 seconds.
[9:07] Speaker 8: Are we expecting a flood of deals to be filed
[9:09] Speaker 8: or hit the road in the next several weeks?
[9:11] Speaker 3: Definitely.
[9:11] Speaker 9: We expect potentially a couple this week. And then I
[9:14] Speaker 9: think after Labor Day, you'll see people back in the seats.
[9:17] Speaker 9: You'll see filings being put public. You'll see companies starting
[9:20] Speaker 9: those formal roadshows. And we should expect a pretty darn
[9:23] Speaker 9: packed September into October. Again, though, we do have a
[9:26] Speaker 9: live September meeting for the Fed. So that has a
[9:29] Speaker 9: bit of a concern for some of these bankers. And
[9:31] Speaker 9: then obviously all eyes will shortly after pivot to the
[9:35] Speaker 9: election in the midterms and what that does or doesn't
[9:37] Speaker 9: mean for risk.
[9:38] Speaker 3: So I'm just looking at POTS bull tickers for Anthropic.
[9:41] Speaker 3: ANTH is already taken by Anthra Pharmaceuticals. So what, ANTR? No,
[9:48] Speaker 3: like you still have to have the like thethropic part
[9:50] Speaker 3: of it in the ticker. Do we have any idea
[9:52] Speaker 3: what they're going.
[9:52] Speaker 1: To use as their ticker?
[9:53] Speaker 7: No, that's a good question though.
[9:54] Speaker 6: All right.
[9:55] Speaker 7: I'm sure you could probably bet on it on Calgary. Oh,
[9:57] Speaker 7: I'm sure. There's a market for that.
[9:59] Speaker 1: There's a market for everything.
[10:01] Speaker 7: Stay with us.
[10:02] Speaker 2: More from Bloomberg Intelligence coming up after this.
[10:08] Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
[10:12] Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
[10:15] Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
[10:18] Speaker 5: you get your podcasts or watch us live on YouTube.
[10:21] Speaker 8: Well, it's Monday, which means it's Merger Monday, which means
[10:25] Speaker 8: a pharmaceutical company is out there buying another healthcare pharmaceutical
[10:29] Speaker 8: slash biotech company. And today it's Eli Lilly buying Merida Biosciences,
[10:34] Speaker 8: $ 2. 88 billion in cash. Michelle Cortez joins us. She's the
[10:39] Speaker 8: Senior Editor for Global Business for Bloomberg News. She's based
[10:42] Speaker 8: down there in D.C. Michelle, talk to us about Eli
[10:44] Speaker 8: Lilly and Merida Biosciences. What's going on here?
[10:48] Speaker 10: Well, Lilly has been making a bet on this particular
[10:52] Speaker 10: space on immunology products for the last several years. It
[10:56] Speaker 10: does have a number of products here as well. But
[10:58] Speaker 10: the bigger story is that Lilly is looking to actually
[11:01] Speaker 10: put some of this power that it's getting from selling
[11:06] Speaker 10: diabetes shots and weight loss shots that have become so
[11:09] Speaker 10: ubiquitous in the United States and the rest of the world.
[11:12] Speaker 10: They're trying to put that to use so that when
[11:14] Speaker 10: they do eventually lose some of that protection, some of
[11:17] Speaker 10: that patent protection, they'll be able to have future income streams.
[11:22] Speaker 10: It's hard to look at now because they do make
[11:24] Speaker 10: so much money from those. But immunology is a huge
[11:27] Speaker 10: and growing area. And that's one of the areas where
[11:29] Speaker 10: Lilly is really staking its claim.
[11:31] Speaker 3: Michelle, I go to the BUYP buyer profile or intent
[11:35] Speaker 3: profile page on the Bloomberg Terminal, and Lilly has made
[11:38] Speaker 3: a number of acquisitions in recent weeks and months. Merida
[11:43] Speaker 3: is just the latest for $ 2. 9 billion, but in August,
[11:46] Speaker 3: there were two purchases with some other companies, Indupro and
[11:51] Speaker 3: Amplifica Holdings. In July, there was Ratio Therapeutics. Do any
[11:55] Speaker 3: of these get the attention of regulators?
[11:59] Speaker 10: You know, these acquisitions aren't really getting the attentions of regulators.
[12:02] Speaker 10: It's getting a lot of attention from investors. Lilly is
[12:07] Speaker 10: really taking a very different approach. They're buying things at
[12:10] Speaker 10: a very early stage. It's a great question, actually. I
[12:12] Speaker 10: don't know if they're somehow, you know, hovering up an
[12:16] Speaker 10: awful lot of early stage products in the same category
[12:20] Speaker 10: so that they could be kind of cornering the market
[12:23] Speaker 10: on some new technology that's just emerging. It's so early
[12:28] Speaker 10: what they're doing, though. I think that it's probably unlikely
[12:30] Speaker 10: and others would follow quickly along. It's interesting, all of
[12:34] Speaker 10: those things that you're citing, the numbers, they've told us
[12:38] Speaker 10: that they look at 10 different acquisitions every single week.
[12:42] Speaker 10: And so they're pulling the trigger a lot, but they're
[12:44] Speaker 10: pulling it at a very low rate, right? All of
[12:46] Speaker 10: those ones that you're talking about. I think the biggest
[12:49] Speaker 10: deal that Lilly has ever done is sub $ 8 billion,
[12:52] Speaker 10: you know, like.
[12:56] Speaker 10: It is comparatively to the size of the company. It's
[12:59] Speaker 10: very small potatoes. They are just chucking a lot of potatoes,
[13:03] Speaker 10: in all honesty.
[13:04] Speaker 7: It's interesting.
[13:05] Speaker 8: Well, I've been at Bloomberg 17 years, and I just
[13:07] Speaker 8: learned another function today, the BYP function.
[13:10] Speaker 10: Yeah, yeah.
[13:11] Speaker 7: Very cool. I like that.
[13:13] Speaker 8: Michelle, what does Eli Lilly prefer to do? Do they
[13:16] Speaker 8: prefer to develop stuff in their lab or just go
[13:20] Speaker 8: out and buy it, like with this deal?
[13:22] Speaker 6: Right.
[13:23] Speaker 10: Well, I mean... It's got to be a hard decision, right?
[13:27] Speaker 10: Lilly paid the price of this a long time ago
[13:31] Speaker 10: with Prozac. Of course, they were dominant in that particular space.
[13:35] Speaker 10: And then when they lost the patent protection on Prozac,
[13:37] Speaker 10: they really had to scramble. And then the GLP-1s, they
[13:41] Speaker 10: did that themselves. Like this is a huge market. Obviously,
[13:44] Speaker 10: they weren't first movers. That was Novo Nordisk. But they
[13:48] Speaker 10: developed their weight loss and obesity drugs in-house, and they
[13:52] Speaker 10: have really reaped the benefits there. And they want to
[13:55] Speaker 10: do that again. And the problem is, is that it
[13:58] Speaker 10: just can't be an expert everywhere. So they're bringing in
[14:01] Speaker 10: stuff early stage. They're trying to develop it in-house and
[14:04] Speaker 10: then create it long-term. We'll see what happens. A lot
[14:08] Speaker 10: of other companies in this particular situation, when they've had
[14:11] Speaker 10: huge products that are losing patent protection, they go out
[14:16] Speaker 10: and do $ 25 billion, $ 30 billion, $ 50 billion. I mean,
[14:20] Speaker 10: not a lot because there's not a lot of companies
[14:22] Speaker 10: that can pony up that kind of money. But we
[14:24] Speaker 10: do see massive M & A. They're doing massive numbers
[14:28] Speaker 10: in terms of deals, not massive size of the deals themselves.
[14:32] Speaker 3: I'm fascinated by the fact that Eli Lilly is kind
[14:35] Speaker 3: of scouring for deals on such a frequent basis. And yes,
[14:39] Speaker 3: pulls the trigger on a couple of them, but doesn't
[14:41] Speaker 3: necessarily take a bite out of all of them. What
[14:44] Speaker 3: does that mean in terms of their willing? I mean,
[14:48] Speaker 3: do they have like a goal of how many companies
[14:50] Speaker 3: or investments they want to make, you know, that they
[14:53] Speaker 3: feel that they need to execute on?
[14:57] Speaker 10: I don't think that they have a number that they
[14:59] Speaker 10: need to execute on at this point. And to be fair,
[15:02] Speaker 10: they don't have an awful lot of pressure at the moment, right?
[15:07] Speaker 10: The patents that they have on these GLP-1 drugs, the shots,
[15:11] Speaker 10: they have those for at least another decade. So that's
[15:13] Speaker 10: not going to be hit too hard. And they are
[15:15] Speaker 10: innovating in that particular space. Like we see some pills
[15:19] Speaker 10: and whatnot that are coming along, even more effective, more
[15:22] Speaker 10: potent medicines. They will face a little bit of pressure because...
[15:26] Speaker 10: Novonar discs drugs are older and they are coming off patent,
[15:31] Speaker 10: but Lilly's to this point have been a little bit
[15:32] Speaker 10: more effective. So we'll see if that creates pressure, but
[15:36] Speaker 10: it won't be, I think, for another five to eight
[15:39] Speaker 10: years that Lilly will actually start having to show how
[15:42] Speaker 10: they're going to replace this medicine. You only have to
[15:44] Speaker 10: look at Pfizer and the struggles that they've had post-pandemic, right,
[15:47] Speaker 10: when they've lost their covid vaccines and their covid treatments
[15:51] Speaker 10: they just do not want.
[15:52] Speaker 2: To do that stay with us more from bloomberg intelligence
[15:54] Speaker 2: coming up after.
[15:55] Speaker 5: This you're listening to the bloomberg intelligence podcast catch us
[16:03] Speaker 5: live weekdays at 10 a.m eastern on apple carplay and
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[16:12] Speaker 8: Youtube merger monday full force here today kkr our friends
[16:17] Speaker 8: over there They are selling USI Insurance Services to Aon
[16:23] Speaker 8: for $ 17 billion, and KKR is set to reap a
[16:28] Speaker 8: $ 3. 3 billion windfall for the deal.
[16:30] Speaker 7: Pretty good for our.
[16:31] Speaker 8: Friends over there. Matt Palazzolo joins us here, Senior Analyst.
[16:34] Speaker 8: He covers the property and casualty insurance space. Talk to
[16:37] Speaker 8: us about what Aon is buying.
[16:39] Speaker 7: Here for $ 17 billion.
[16:40] Speaker 6: Yep.
[16:42] Speaker 12: They are buying another insurance broker. This is not an
[16:45] Speaker 12: insurance company. USI doesn't take on risk. They're a middleman.
[16:51] Speaker 12: What's been happening is the big global brokers like Aon
[16:55] Speaker 12: and Marsh, they have historically operated in the large account market,
[16:59] Speaker 12: like Fortune 500 companies. For many years now, they have
[17:03] Speaker 12: been battling over the middle market in the US and
[17:06] Speaker 12: trying to grow there. Marsh has an organic way of growing,
[17:10] Speaker 12: and they do some bolt-on deals. Aon has really done
[17:13] Speaker 12: it through big deals. So the purpose here for Aon
[17:18] Speaker 12: is to grow in the U.S.
[17:20] Speaker 11: Middle market. KKR owned it. I believe they have.
[17:24] Speaker 12: To monetize these things over time anyway, so I think
[17:27] Speaker 12: it seemed like a good time for.
[17:28] Speaker 11: Both of them.
[17:29] Speaker 8: It says here in Bloomberg News reporting, the sale is
[17:31] Speaker 8: expected to generate a 3.4 times return. On KKR's balance sheet,
[17:36] Speaker 8: capital invested pretty solid there.
[17:38] Speaker 7: So why go after the middle market?
[17:41] Speaker 8: Is the middle market more or less profitable than doing
[17:43] Speaker 8: the corporate, the Fortune 500 type thing?
[17:46] Speaker 11: It's more profitable.
[17:47] Speaker 12: The prices are more sticky. So these guys will get paid.
[17:51] Speaker 12: The brokers will get paid on a commission on the business, right?
[17:54] Speaker 12: And if you're doing a bigger company, you might get
[17:56] Speaker 12: paid on a fee. So if they're organizing all of whoever,
[17:59] Speaker 12: Google's insurance or something, Google's not going to say, look,
[18:03] Speaker 12: We're going to pay you 10% to 15% of it all.
[18:05] Speaker 12: We'll pay you a fixed fee. In the middle market,
[18:08] Speaker 12: there's more commission business, and the prices are more sticky.
[18:12] Speaker 11: It is more attractive, but it can be smaller.
[18:15] Speaker 2: It seems like this insurance brokerage business is a pretty
[18:18] Speaker 2: good business.
[18:19] Speaker 11: It is a good business.
[18:20] Speaker 12: This is why private equity loves this business. It generates
[18:24] Speaker 12: a lot of cash. They buy these companies. Some of
[18:29] Speaker 12: the companies they buy continue to roll up smaller companies.
[18:33] Speaker 12: They throw off a lot of cash, and then they
[18:34] Speaker 12: can turn around and sell them. The space as a
[18:39] Speaker 12: whole was trading at peak PE or EV to EBITDA
[18:43] Speaker 12: multiples over the past couple of years because growth was
[18:46] Speaker 12: really good. Margin expansion was really good. Those margins have
[18:49] Speaker 12: come down a significant amount. This deal was still kind
[18:53] Speaker 12: of struck. on an unadjusted basis at those higher levels.
[18:57] Speaker 12: So I think good business, good strategic piece for Aon,
[19:04] Speaker 12: more compelling strategically than financially, I think, for Aon.
[19:07] Speaker 8: I used to look around and I said, this insurance
[19:10] Speaker 8: brokerage business, I was looking at my buddies, solid C
[19:14] Speaker 8: players coming out of school making a boatload of dough
[19:16] Speaker 8: in the insurance business.
[19:18] Speaker 7: And I remember, that's a good business.
[19:20] Speaker 8: Now, in the investment brokerage business, my business, the competition
[19:25] Speaker 8: has cut the margins to like nothing practically. You know,
[19:29] Speaker 8: I used to make three quarters of a bid trading
[19:32] Speaker 8: stocks back in the day.
[19:33] Speaker 7: Now I get a penny or two. Has that happened
[19:34] Speaker 7: in the insurance business?
[19:35] Speaker 11: It has not.
[19:36] Speaker 12: So the commissions in this business have been historically pretty resilient.
[19:41] Speaker 12: I remember back when, you know, I don't want to
[19:44] Speaker 12: say when the internet, but you know, when the internet
[19:46] Speaker 12: was becoming kind of wider spread, people thought, okay, this
[19:49] Speaker 12: is going to democratize. this, uh, process and it's going
[19:53] Speaker 12: to cut into margins.
[19:54] Speaker 11: Didn't really do it.
[19:55] Speaker 12: Um, earlier this year, we had a whole panic about
[19:58] Speaker 12: AI and AI was going to cut into the broker
[20:00] Speaker 12: margins still to be determined, but I don't think so.
[20:05] Speaker 8: So why hasn't some kid in the garage come up
[20:08] Speaker 8: with a cheap way to to price and trade insurance policies,
[20:14] Speaker 8: just like they have for stocks and bonds?
[20:17] Speaker 11: I mean, it's a good question. I think.
[20:21] Speaker 12: This is a relationship business, and that's kind of.
[20:23] Speaker 11: The stock answer. It's a relationship business.
[20:27] Speaker 12: I think it's very complex. I think the way I
[20:29] Speaker 12: break it down is, think about this. So you have
[20:32] Speaker 12: your car, you have your house, right? Maybe you're comfortable
[20:35] Speaker 12: buying your car insurance online, right?
[20:38] Speaker 6: Yep.
[20:38] Speaker 12: When you have to protect your house, especially your shore house,
[20:41] Speaker 12: you want to know, am I covered for this? Am
[20:45] Speaker 12: I not covered for that? Am I covered for wind?
[20:47] Speaker 12: Am I covered for flood? What does it pay in
[20:49] Speaker 12: these situations? So it's a more complex transaction. Now, scale
[20:54] Speaker 12: that up to, I'm a corporation. I've got liability.
[20:58] Speaker 11: I've got this. I've got that.
[20:59] Speaker 12: So that tech, the kid in the can't duplicate necessarily
[21:05] Speaker 12: yet that kind of knowledge base.
[21:07] Speaker 11: So hopefully that makes sense.
[21:11] Speaker 8: But AI seems like, I mean, again, AI just seems
[21:15] Speaker 8: to me it's searching around for inefficiencies in the market
[21:17] Speaker 8: writ large. You know, the securities market's already been squished
[21:22] Speaker 8: to a penny.
[21:23] Speaker 11: Agreed. I think so. I think there's two things.
[21:25] Speaker 12: I think, one, if you're a sophisticated risk manager, you
[21:28] Speaker 12: may be able to use AI to assess your risk
[21:32] Speaker 12: landscape a little bit better than you were in the past.
[21:35] Speaker 11: So you might need.
[21:36] Speaker 12: Less of the services from these companies, but I think
[21:38] Speaker 12: you still need the relationship.
[21:40] Speaker 5: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
[21:45] Speaker 5: and anywhere else you get your podcasts. Listen live each weekday,
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