According to reports from Keefe, Bruyette & Woods (KBW), Arthur J Gallagher (AJG) will be able to stabilise and reinvigorate Willis Re’s employee and client bases, whilst expanding its reinsurance product capabilities and global footprint.
It was announced last week that Arthur J. Gallagher & Co. agreed to pay $3.25 billion to acquire the treaty reinsurance brokerage operations of Willis Towers Watson’s Willis Re unit.The acquisition includes the Willis Re Securities unit, a specialist team with expertise and a track-record in catastrophe bond or insurance-linked securities (ILS) structuring, arranging and sales to investors, as well as other capital market skills.
Even with Willis Re’s near-term challenges, KBW still believes that this is a good deal for AJG due to its recent strong earnings which reflect its successful integration of larger acquisitions.
In some cases, these larger acquisitions involved changing senior management teams and making other changes to improve performance, KBW expects to see the same successes with Willis Re.
Since AJG will acquire Willis Re’s analytical tools and extensive capabilities, these are profitable on their own and should drive cross-sell and new business opportunities over time.
In many cases, AJG’s familiarity with the risks placed with primary insurance companies positions it well to design these insurers’ reinsurance programs.
KBW expects AJG’s initial focus is expected to be on top-line growth rather than margin expansion, since its CFO Doug Howell described the deal as a growth story, especially as AJG makes additional investments in people and systems to sustain Willis Re’s longer-term outlook.
The analysts are confident that this deal with face antitrust concerns, such as the DOJ’s successful blockage of the AON/WLTW combination, we don’t think this deal will face antitrust concerns since AJG’s reinsurance business, Gallagher Re is much smaller than Willis Re.
The European Commission has already expressed its comfort with AJG’s initial proposal to acquire Willis Re, which is thought to be due to reinsurance brokerage market share concentration.
