Gallagher to acquire certain Willis Towers Watson assets

Arthur J. Gallagher & Co. has announced an agreement to acquire certain Willis Towers Watson reinsurance, specialty and retail brokerage operations as part of a proposed “regulatory remedy” for the pending Aon and Willis Towers Watson deal.

Under the agreement, Gallagher would acquire the combined operations for gross consideration of $3.57 billion, the brokerage announced in a press release Wednesday. The transaction is expected to close during the second half of 2021.

“This acquisition will accelerate our long-term strategy by significantly expanding our global value proposition in reinsurance, broadening our retail brokerage footprint and strengthening key niches and specialty brokerage offerings,” said J. Patrick Gallagher, Jr., chairman, president and CEO. “The powerful combination of expertise, geographic reach and scale that this acquisition presents will greatly enhance our offerings to clients and prospects, while also providing significant value for our colleagues, carrier partners and shareholders.

“Most importantly, I look forward to welcoming more than 6,000 new colleagues to our growing Gallagher family of professionals.”

The transaction is subject to European Commission, U.S. Department of Justice and other regulatory approvals, including regulatory approvals related to the pending Aon plc and Willis Towers Watson plc combination and the proposed remedy.

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Shareholders of both Aon and Willis Towers Watson voted in August 2020 in favour of the Aon-Willis Towers Watson combination. If completed, the deal would form the world’s largest commercial property and casualty insurance brokerage.

Willis Towers Watsons’ North American brokerage operations generated approximately $50 million of estimated pro forma revenue for the year ending Dec. 31, 2020, Gallagher said in its announcement. This includes certain property and casualty brokerage business from predominantly middle-market and large-account clients located in select markets such as San Francisco, Houston and Bermuda, across niches such as construction and energy.

“While there won’t be a direct impact for Canada retail brokerage, the deal does broaden our capabilities through the treaty reinsurance business, which includes approximately 20 individuals in Canada we will welcome to Gallagher, plus a meaningful amount of analytics and ILS (insurance-linked securities) capability that attaches to that business,” a Gallagher spokesperson told Canadian Underwriter Thursday.

The reinsurance brokerage operations, which include both treaty and facultative reinsurance, generated approximately $750 million of estimated pro forma revenue for the year ending Dec. 31, 2020, Gallagher said. The business represents over 750 insurance and reinsurance company clients, across more than 25 countries, and places over $11.5 billion of premium annually.

As for the U.K. and European brokerage operations, they generated approximately $500 million of estimated pro forma revenue for the year ending Dec. 31, 2020. European retail brokerage includes certain operations in Germany, Netherlands, Spain and France, including the vast majority of French insurance broker, Gras Savoye. Specialty operations in the U.K principally include cyber, space and aerospace products.

The combined operations — which include certain of Willis Re’s treaty and facultative reinsurance brokerage operations, as well as certain United Kingdom specialty, European and North American brokerage operations — generated $1.3 billion of estimated pro forma revenue and $357 million of estimated pro forma EBITDA (earnings before interest, taxes, depreciation and amortization), in each case for the year ending Dec. 31, 2020.

Benefits of the acquisition are expected to include:

• Expanded global value proposition within reinsurance brokerage
• Broadened global footprint in retail property and casualty and health & benefits brokerage
• Increased depth in key niches and specialty operations such as energy, construction, cyber, space, and aerospace products
• A comprehensive suite of analytics capabilities including catastrophe modelling, dynamic financial analysis, rating agency analysis and capital modelling
• Stronger relationships with major insurance carriers and new relationships with middle market and large account retail clients
• Added platforms for future tuck-in acquisitions

Gallagher said it expects to finance the transaction using a combination of long-term debt, short-term borrowings, free cash and common equity.

Integration is expected to take approximately three years with total non-recurring integration costs estimated to be approximately $350 million.

Morgan Stanley & Co. LLC and BofA Securities acted as financial advisors and Sidley Austin LLP acted as legal advisor to Gallagher on this transaction.

Feature image via iStock.com/mikdam