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Morningstar | Aon Rumored To Be Interested in Acquiring Willis Towers Watson

While it has been rumored that Aon is interested in acquiring Willis Towers Watson and could make a bid in the next few weeks, we're a bit skeptical about the wisdom of such a move. At first glance, this would be a very sizable deal for Aon, as Willis Towers Watson's market capitalization is currently a little over half of Aon's, and presumably Aon would have to pay a significant premium to get the deal done. As such, we think there would need to be fairly dramatic benefits to justify an acquisition of this type, especially as the traditional avenues to value creation in this instance seem somewhat limited. Aon and Willis Towers Watson offer a similar mix of services but differ a bit in the types of customers they serve. We think cross-selling benefits in this industry are relatively mild to begin with, and this combination could further limit them. A more common rationale for mergers in the space is the potential for cost synergies. However, Willis Towers Watson recently completed a significant cost reduction effort, and Aon is close to finishing its own efforts in this direction. As such, the scope for cost synergies could be more limited than we’ve seen in other similar combinations. At this point, though, any potential deal is just a rumor and our enthusiasm for any acquisition would depend on its specifics. We will maintain our narrow moat rating for both companies and our fair value estimate of $154 for Aon and $163 for Willis Towers Watson until we have further details.