With global brokerage Arthur J. Gallagher set to acquire certain assets of Willis Towers Watson (WTW), including Willis Re, the company expects to significantly expand its global value proposition in reinsurance as well as its global footprint in other parts of the business.
Aon and WTW announced today an agreement to sell certain WTW reinsurance, specialty and retail brokerage operations to Gallagher for a consideration of $3.57 billion.
The deal is part of a proposed regulatory remedy to gain EU antitrust approval for the proposed $30 billion merger of Aon and WTW.
Combined, the operations in the Gallagher deal include certain Willis Re treaty and facultative reinsurance broking operations, alongside certain UK specialty, European and North American brokerage operations. These operations generated a combined $1.3 billion of estimated pro forma revenue and $357 million of estimated pro forma EBITDAC, at year-end 2020.
Broken down, the reinsurance business generated around $750 million of estimated pro forma revenue for 2020, and places more than $11.5 billion of premium annually.
Gallagher continues to explain that the UK and European broking operations generated approximately $500 million of estimated pro forma revenue for 2020. In Europe, the retail broking operations to be acquired by Gallagher includes certain operations in Germany, the Netherlands, Spain, and France, including most of Gras Savoye. In the UK, specialty operations principally include cyber, space, and aerospace products.
The North American broking business produced estimated pro forma revenue of $50 million for 2020, and includes certain P/C brokerage business from mainly middle-market and large-account clients located in select markets such as San Francisco, Houston, and Bermuda, across niche areas such as construction and energy.
J. Patrick Gallagher, Jr., Chairman, President and Chief Executive Officer (CEO), commented: “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.
“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.”
For Gallagher, the main benefits of the acquisition are expected to include:
- Expanded global value proposition within reinsurance brokerage;
- Broadened global footprint in retail property 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 modeling, dynamic financial analysis, rating agency analysis and capital modeling;
- Stronger relationships with major insurance carriers and new relationships with middle market and large account retail clients; and
- Added platforms for future tuck-in acquisitions.
In order to acquire the combined operations for the reported $3.57 billion, Gallagher expects to leverage a combination of long-term debt, short-term borrowings, free cash, and common equity.
Subsequently, Gallagher has today announced an underwritten public offering of 9 million shares of its common stock. Additionally, the broker intends to grant the underwriters a 30-day option to purchase an additional 1.35 million shares of common stock from Gallagher.
While the net proceeds of this offering are intended to fund a slice of the acquisition of certain WTW assets, Gallagher notes that the offering is not conditional on the closing of the WTW transaction; adding that there can be “no assurance that the WTW Transaction will be completed.”
Morgan Stanley is acting as sole book-running manager for the underwritten public offering.
According to Gallagher, integration of the combined operations is expected to take around three years with total non-recurring integration costs estimated to be roughly $350 million.
“After giving effect to these assumptions and pro forma results discussed above, the acquired operations would have been approximately 9% to 11% accretive to Gallagher’s 2020 adjusted GAAP EPS excluding earnings from clean energy investments,” explains Gallagher.
Gallagher’s agreement with Aon and WTW remains subject to European Commission (EC), U.S. Department of Justice (DoJ) and other regulatory approvals, including regulatory approvals related to the pending Aon and WTW combination and the proposed remedy.
