Why is there fresh JLT takeover speculation?

Once again, the City is excited over the prospect of JLT being taken over. Last time it was Aon, this time it’s Marsh. The share price rose 3% earlier this week from 580 to 603p.

It’s now fallen back to 592p, which suggests it was speculation.

It’s the second time this year JLT has been the subject of takeover gossip. Chief executive Dominic Burke insisted in May that the prospect of an Aon takeover was "laughable".

But the question the renewed speculation begs is: why JLT is frequently at the centre of takeover talk? Well, there are three reasons.

It's small but mighty

The first reason is that it’s widely accepted that under the five-year stewardship of chief executive Dominic Burke, the company has produced excellent results, yet remains small enough for the appetites of larger predators such as Aon and Marsh.

Thomas Dorner, analyst at Oriel Securities, says: “It is a relatively high growth and also relatively small in terms of size. It has $1.3bn market cap and a PE ratio of 13. All of this makes it attractive.

“There was this sort of speculation with Aon and Benfield before the merger a few years ago. You can never rule out a takeover because you just don’t know.”

JLT is 30% owned by a larger conglomerate, Jardine Matheson, based in Hong Kong, with a diverse range of companies including construction, shipping and transport creating $27bn revenues.

Dorner says: “I do not think it needs to sell, but if someone comes along and happens to make a very attractive offer, they will sell.”

The state of the market

The second reason for speculation is simply the state of the market. Rates are still scraping around the bottom, making organic growth difficult.

A soft market is no excuse for the shareholders of the likes of Aon, Willis and Marsh, which like to see continued growth.

In this environment, shareholders are perhaps more accepting of a share issue to fund acquisitions.

It's good to talk

The final reason is simply that people like to speculate. Corporate advisers and investment bankers need work, especially in these days of slow growth.

The thinking, although it may be wishful, is that if enough gossip is stirred up, perhaps shareholders might bite and force the hand of the management.

A JLT spokesman said: “We do not comment on market speculation and gossip.”

Speculation it may be, but don’t expect it to stop anytime soon.