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Aon unit sale could lead to focus on faster growing business: Analysts

Aon unit sale could lead to focus on faster growing business: Analysts

The reported possible sale of Aon P.L.C.’s benefits outsourcing unit for $5 billion would allow the brokerage to focus on faster growing business, if the deal goes through, analysts say.

In a note issued Friday, analysts at Keefe Bruyette & Woods Inc. in New York said: “We view the potential sale as furthering our investment case that management is deploying capital into the fastest-growth, highest-margin businesses.”

When Aon purchased benefits consultant Hewitt Associates in 2010 for $4.9 billion, about half of Hewitt’s business was related to benefits outsourcing. The rumored sale, which was reported by Reuters who cited people familiar with the deal, would recoup Aon’s investment in all of Hewitt, the Keefe Bruyette report noted.

According to the Reuters report, the sale would allow Aon to focus on its risk and insurance brokerage business.

Analysts at Credit Suisse Securities (USA) L.L.C. said that, if the sale goes through, it could allow Aon to grow its profit margins.

“We suspect Aon would likely only consider a sale if outsourcing is … lagging that of the overall HR solutions division, which we expect to come in at 19% for 2016. We think exiting the outsourcing business likely helps Aon get closer to achieving is long-term 22% margin goal for HR Solutions,” the Credit Suisse report said.

“Benefits administration has had declining margins and slowing growth in recent years,” the report said.

Analysts at both the investment firms believe that Aon will use the proceeds from a sale to buy back stock.

“There aren’t any obvious sizeable M&A prospects that stand out to us,” the Credit Suisse note said.

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