Aon and Benfield - Deals could signify mass consolidation

Both transactions are expected to be completed by the end of the year and mark a significant shift in the consolidation spectrum. HRH is the eighth-largest broker in the United States and is around number 30 in the UK rankings, according to IMAS, having taken over Glencairn in January 2007. The deal was concluded for £1.1bn.

Benfield is the seventh largest broker in the UK and the bulk of its book is reinsurance. Benfield, bought for £935m, including £91m of debt, has grown rapidly under the stewardship of chief executive Grahame Chilton since 1996. In its last annual report, Benfield made a pre-tax profit of just under £50m with HRH generating pre-tax profits of $131m (£72.7m).

Olly Laughton-Scott of IMAS said: "This is a full price (for Benfield) but if they can make the (projected) £65m of cost savings then it stacks up. The profit projections are flat, so if it is business as usual then it could be a mistake. There isn't much more (other large brokers) around." A Panmure Gordon & Co. briefing note, entitled Take the Money and Run, said: "This is a great exit route for shareholders, given the medium to long-term challenges facing Benfield." Intriguingly, the note added: "Benfield faces the perfect storm of soft insurance rates, a relative weak dollar and well-documented issues at Benfield Corporate Risks ... in the face of such headwinds, the well-regarded management of Benfield should be congratulated for engineering such a deal." However, the broker changed its target from a sell to a hold.

Greg Case, chief executive at Aon, said: "The strong cultural fit between our firms will enable us to quickly realise the benefits of this transaction, and the value added for our clients and shareholders, in a seamless fashion following the close of our transaction."

The Benfield deal is set to land Chilton, 49, £76m for his 10.4% stake. He will now oversee the new Aon Benfield Global Re and become vice-chairman of Aon, reporting to Vase. Benfield chairman John Coldman's 6.7% stake is worth £49m and Mike Rees, a former director, will get £53m for his 7.1% stake. Coldman, Chilton and Matthew Harding, the late vice-chairman of Chelsea Football Club, led a management buy-out of the broker in 1988, floating on the London Stock Exchange in 2003.

The large acquisitions are unlikely to stop there, as Aon has stated its intention already to carry on using surplus cash flow to fund further deals.

Asked why he thought that such acquisition activity was continuing, Laughton-Scott said: "This is a mature industry and it is inevitable you see a rationalisation as people cut costs down in the face of competitive pressures. The importance of individuals in transactions should not be underestimated."

A senior market source thought that, despite Willis and Aon buying, their next largest rival would not follow suit: "The company that hasn't done a deal is Marsh. It is going through significant internal issues and questions over its own structure with it owning Kroll." However, as revealed by PB's sister title, Reinsurance, Marsh was also linked with Benfield and has signed a non-compete clause with Benfield for the next three months.

Acquisitions always seem to come in threes, so many in the market will be watching the horizon for the latest broking blockbuster deal to come along. In addition, as PB went to press, rumours were circling that Marsh could yet trump Aon's bid for Benfield. Benfield had no comment, while Marsh was not immediately available for comment. The fact that two major brokers are competing for acquisitions ensures that the rivalry at the top of the broking pile shows no sign of waning.