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Aon Plc is considering a combination with rival insurance brokerage Willis Towers Watson Plc, in what could be the industry’s largest ever merger.

Aon is in the early stages of exploring an all-share tie-up with Willis Towers, it said in a statement Tuesday after Bloomberg earlier reported the potential plans. The companies have held preliminary talks and Aon is preparing to submit a bid in the coming weeks, people familiar with the matter said, asking not to be identified as the details aren’t public.

The deliberations are at a preliminary stage and may not lead to a deal, Aon said.

Shares of Willis Towers jumped as much as 8.6 percent to their highest price ever. They closed up 5.2 percent to $182.04 in New York trading, valuing the company at about $24 billion. Aon fell 7.8 percent to $157.25 for a market value of about $38 billion.

A spokesman for Willis Towers Watson said the company doesn’t comment on market rumors and speculation.

Brokerages, which help connect businesses looking for coverage with insurers, have been aggressively merging to diversify, boost commissions and serve customers who increasingly want to deal with fewer intermediaries.

Deals in the broker space accounted for most of 2018’s insurance deals in the U.S. and Bermuda, according to a report from Deloitte. Those deals were on average smaller than many transactions for underwriters, meaning the total value of brokerage deals accounted for just 16 percent of total transactions in the space.

GTCR Deal

The industry started 2019 with a sizable deal. Private equity firm GTCR LLC and other buyers agreed in February to buy a majority stake in AssuredPartners Inc. from Apax Partners. That transaction valued AssuredPartners at about $5.1 billion, according to people familiar with the matter.

The Aon and Willis Towers “potential transaction would put together two very large global insurance broking companies that are also engaged in a number of human resources and management consulting practices,” Harry Fong, an analyst at MKM Partners, said Tuesday 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 the world’s third-biggest brokerage, while Aon is No. 2. That boost could help Aon and Willis Towers compete against a rival that’s continued to grow in recent years. Marsh & McLennan last year struck its largest deal with a $5.7 billion agreement to buy Jardine Lloyd Thompson Group Plc. Those companies expect to close the transaction this year.

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

London Market

Both Aon and Willis Towers have headquarters in London while each maintains a large presence in the U.S. Aon announced in 2012 that it was moving its headquarters from Chicago, saying the switch would give it better access to the Lloyd’s of London insurance market and some emerging economies, as well as drive shareholder value under the U.K.’s tax system. Towers touted the tax benefits of a European headquarters when seeking to garner support for the Willis deal.

A transaction with Aon could create more discontent among Willis Towers employees, who would have to contend with another restructuring, according to analyst Meyer Shields at Keefe Bruyette & Woods. While Aon has demonstrated its ability to acquire and integrate other companies, the combination could create inefficiencies affecting revenue in some brokerage and consulting operations, he said.

‘Big Overhang’

Aon and Willis Towers deal would be a mash-up of two of the largest 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 to the size of both companies and are not convinced a deal can come to fruition,” Greenspan said in a note to clients.

Rival Marsh & McLennan, which is currently seeking approvals for its own deal, agreed to hive off JLT’s aerospace business because of an overlap in that market as part of the European Commission’s review of that deal.

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

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

Related:

• Newly Merged Willis Towers Watson Begins Operating
• Towers Watson and Willis Shareholders Approve $8.9 Billion Merger Deal
• Marsh & McLennan Moved Quickly as Stars and People Aligned in JLT Deal
• Marsh & McLennan’s $5.6B Acquisition of Broker JLT Gets Shareholder Nod

Topics Mergers & Acquisitions Agencies London Aon Willis Towers Watson