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AON to Divest eDiscovery to TCDI, To Focus on Core Operations

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Aon plc AON recently agreed to divest its eDiscovery practice to a private legal services and cybersecurity provider TCDI. AON’s cyber solutions business will continue its operations and focus on commercial partnerships.

The deal is expected to close approximately in a month. After completing the divestment, AON is expected to maintain its commercial relationship with TCDI focusing on the clients’ needs. The latest divestiture highlights that AON’s management does not shy away from unloading less profitable assets to boost its margins.

AON has been selling off non-core operations for years to streamline its business. During the 2011-2021 period, Aon completed 123 divestments for around $5.7 billion. The sale of businesses allows it to focus on more profitable operations, and generate a higher return on equity. AON’s trailing 12-month return on equity (ROE) of 119.5% compares favorably with the industry’s ROE of 29.6%, reflecting its efficiency in utilizing its shareholders’ funds.

The proceeds from the divestment can also help AON reduce its leverage. Its total debt to total capital was 88.9% at the March-quarter-end, higher than the industry’s average of 50.5%. Aon exited the first quarter with cash and cash equivalents of $595 million, much lower than its long-term debt of $9,685 million, which jumped from $8,228 million at 2021 end. Short-term debt and the current portion of the long-term debt amounted to $599 million at the first quarter-end.

The deal is expected to benefit TCDI by adding capabilities like information governance and others to its eDiscovery portfolio. It will also bring Aon's NOMAD mobile processing platform plus PHI/PII detection and post-data-breach support tools to its kitty, thus boosting its expertise. The acquisition will likely extend the acquirer’s geographic reach in the United Kingdom.

Price Performance

AON’s shares have inched up 3.9% in the past year against the 8.5% fall of the industry.

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Zacks Rank & Key Picks

AON currently has a Zacks Rank #3 (Hold). Some better-ranked players in the Finance space are Ryan Specialty Group Holdings, Inc. RYAN, Arthur J. Gallagher & Co. AJG, and AMERISAFE, Inc. AMSF, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Based in Chicago, IL, Ryan Specialty provides numerous specialty products and solutions for insurance brokers, agents and others. RYAN acts as a wholesale broker and managing underwriter to provide risk management services. The Zacks Consensus Estimate for 2022 bottom line is expected to jump 13% to $1.22 per share from the year-ago actuals.

Headquartered in Rolling Meadows, IL, Arthur J. Gallagher provides insurance brokerage and consulting services, and third-party claims settlement and administration services in the United States and internationally. The Zacks Consensus Estimate for AJG’s 2022 earnings per share indicates a rise of 42.2% from the prior-year reading. The stock has witnessed four upward estimate revisions in the past 60 days compared with none in the opposite direction.

AMERISAFE, headquartered in DeRidder, LA, is a specialty provider of workers’ compensation insurance, which markets and underwrites its insurance through subsidiaries. The consensus estimate for 2022 bottom line of AMSF has increased 3.9% in the past 60 days. During this period, the stock has witnessed one upward estimate revision and no downward movement.

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