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Investors Attracted to Insurance Brokerage Aon

Source: Smart Money/Reuters

Posted on 02 Dec 2010

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Investors are attracted to insurance broker Aon's plan to grow over the next couple of years as a result of improved pricing and its recent acquisition of Hewitt Associates.

In the third quarter, U.S. equity-oriented hedge funds, Eminence Capital boosted its position by 6 percent in Aon, and Glenview Capital Management raised its Aon stake sevenfold. According to the quarterly "Smart Money" survey of 30 of the largest stock-picking hedge funds conducted by Thomson Reuters, the additional investment was enough to land Aon on the list of the top 10 increases in existing positions.

"What we're clearly seeing with most insurance brokers is that while last year's revenues were enormously pressured ... most of those factors are much less adverse than they were last year," said Meyer Shields, an analyst at Stifel Nicolaus. "The potential for companies to produce top-line growth is reasonable. Last year it was impossible."

Interest from fund managers coincided with Aon's four-year sponsorship deal with Manchester United, one of the most widely followed sports teams in the world. The soccer club started wearing jerseys emblazoned with Aon's logo in July.

The third quarter was more crucial, though, for a big score on the M&A front. Aon, already the world's largest insurance brokerage, bought Hewitt Associates for $4.9 billion, its largest deal ever, to become the largest provider of human resources services to companies as well.

The takeover did not come cheap, but may have been the only deal Aon could make to accomplish its goal of growing quickly in human resources consulting.

Shields said Aon has done a good job of proving the deal made sense financially, and the company appears committed to buying back shares to negate the dilution from the cash-and-stock transaction. Sources close to the Hewitt deal said Aon made a preemptive strike at a time when other potential buyers were circling the HR giant.

They said Aon CEO Greg Case, who joined the company in 2005 from consulting firm McKinsey & Co, had been watching Hewitt and wanted to move aggressively to diversify Aon's business amid industry consolidation.