Tom Broughton comments on the Aon deal

Aon’s takeover approach for Benfield may just kick-start another wave of consolidation among the leading players.

Just after the Benfield news broke at the end of last week, JLT’s share price spiked, sparking speculation that it could be the next target on Aon’s list. Aon has said it cannot rule out more acquisitions in the future and it is understood that its cash flow is healthy enough to sustain more mega-deals.

But before we get excited about JLT, let’s look at how Benfield complements the super broker. Benfield brings cutting-edge analytics, catastrophe modelling and capital markets expertise, as well as providing synergy with Aon’s client-facing technology. There is geographical synergy too, with businesses across the emerging markets – especially in South East Asia, Japan and Latin America – coming together under one umbrella. This complementary partnership is best illustrated by the companies’ interests in the US, where Aon has a prominent casualty operation and Benfield brings a wealth of property firepower. The next dynamic in this deal is where it leaves the other large reinsurance brokers, such as Guy Carpenter, which was already under pressure after Aon snapped up Gallagher Re earlier in the year.

The deal will now face the scrutiny of the regulatory panels and shareholders alike. If it proceeds, a round of management restructuring and cost-cutting at the Benfield empire will become top of the agenda as there are a lot of expensive heads within the group. Early indications suggest a cost-cutting programme would aim to save about £65m by 2011.

A deal for Benfield is likely to have a trickledown effect and it should spark some further acquisitions, though this may be difficult at a time when growth feels difficult and securing financing is

nigh-on impossible. If Aon does turn its attentions to JLT in the coming weeks, it will first have to convince the powerful private family investors who may not be keen to cut a deal. There is also the issue of competition requirements and the power of the big three across Europe. But with Aon, Marsh and Willis now dominating this reinsurance space, it may be time for Aon to further test its ambition and see whether a takeover of JLT is possible.