Brokerages have been aggressively merging todiversify, boost commissions and serve customers who increasinglywant to deal with fewer intermediaries. (Photo:Shutterstock)

(Bloomberg) –Aon Plc is considering an offer to buy rivalinsurance brokerage Willis Towers Watson Plc, according to peoplefamiliar with the matter, in what could be the industry's largestever merger.

Aon is preparing to submit a bid for Willis Towers in the comingweeks, said the people, who asked to not be identified because thematter isn't public. The companies have held preliminary talks, thepeople said.

No final decision has been made and Aon could opt to not moveforward with an offer, they said.

Shares of Willis Towers jumped as much as 8.3 percent to theirhighest price ever. They were up 4.7 percent to $181.12 at 1:33p.m. in New York trading, valuing the company at more than $23billion.

Aon, which like Willis Towers is based in London but listed inNew York, fell 3.6 percent to $164.57, giving it a market value ofabout $39.5 billion. Trading of its shares was halted at 12:57 p.m.in New York pending an announcement.

A representative for Aon declined to comment. A spokesman forWillis Towers Watson said the company doesn't comment on marketrumors and speculation.

Brokerages, which help connect businesses looking for coveragewith insurers, have been aggressively merging to diversify, boostcommissions and serve customers who increasingly want to deal withfewer intermediaries.

GTCR deal

The industry started 2019 with a sizable deal. Private equityfirm GTCR LLC and other buyers agreed in February to buy a majoritystake in AssuredPartners Inc. from Apax Partners. That transactionvalued AssuredPartners at about $5.1 billion, according to peoplefamiliar with the matter.

The Aon and Willis Towers “potential transaction would puttogether two very large global insurance broking companies that arealso engaged in a number of human resources and managementconsulting practices,” Harry Fong, an analyst at MKM Partners, saidTuesday in a note to clients.

Buying Willis Towers might enable Aon to overtake Marsh &McLennan Cos. as the world's largest brokerage by revenue,according to data compiled by Bloomberg. Willis Towers is theworld's third-biggest brokerage, while Aon is No. 2.

That boost could help Aon and Willis Towers compete against arival that's continued to grow in recent years. Marsh &McLennan last year struck its largest deal with a $5.7 billionagreement to buy Jardine Lloyd Thompson Group Plc. Those companiesexpect to close the transaction this year.

Willis Towers was formed in 2016 through Willis Group HoldingsPlc's $8.9 billion acquisition of the consultancy Towers Watson& Co., the largest insurance broker deal to date.

A transaction with Aon could create more discontent among WillisTowers employees, who would have to contend with anotherrestructuring, according to analyst Meyer Shields at Keefe Bruyette& Woods.

While Aon has demonstrated its ability to acquire and integrateother companies, the combination could create inefficienciesaffecting revenue in some brokerage and consulting operations, hesaid.

'Big overhang'

Aon and Willis Towers deal would be a mash-up of two of thelargest insurance brokers. That size could hinder any transaction,according to Wells Fargo & Co. analyst Elyse Greenspan.

“We see regulatory issues being a big overhang for a deal due tothe size of both companies and are not convinced a deal can come tofruition,” Greenspan said in a note to clients.

Rival Marsh & McLennan, which is currently seeking approvalsfor its own deal, agreed to hive off JLT's aerospace businessbecause of an overlap in that market as part of the EuropeanCommission's review of that deal.

Aon and Willis Towers would likely be required to divestoverlapping businesses, Shields said.

“I would have to think there would have to be more examples ofbusinesses that a combination of Aon and Willis would have tosell,” Shields said. “I would think there would be an awful lot ofareas of excess concentration.”

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