Willis & Towers Watson to merge creating $18bn broking giant

Consolidation is once again in the news as it is announced that insurance and reinsurance broker Willis Group is to merge with global professional services firm Towers Watson, to create an $18 billion broking, advisory and professional services giant.

The result will be an $18 billion firm named Willis Towers Watson with operations across the insurance, reinsurance and professional services and advisory space. It’s perhaps particularly interesting that Towers Watson has come together with Willis, given the firm offloaded its reinsurance broking arm to JLT previously.

Willis Towers Watson will be 50.1% owned by Willis shareholders, while Towers Watson shareholders will own 49.9% of the firm’s equity on a fully diluted basis.

The merger has been unanimously approved by the Board of Directors of each company. Willis Towers Watson will have approximately 39,000 employees in over 120 countries, and pro forma revenue of approximately $8.2 billion and adjusted/underlying EBITDA of over $1.7 billion for the twelve months ended December 31, 2014.

John Haley, Chairman and Chief Executive Officer of Towers Watson, commented; “This is a tremendous combination of two highly compatible companies with complementary strategic priorities, product and service offerings, and geographies that we expect to deliver significant value for both sets of shareholders. We see numerous opportunities to enhance our growth profile by offering integrated solutions that leverage Willis’ global distribution network and superb risk advisory and re/insurance broking capabilities to deliver a more robust set of analytics and product solutions across a broader client base, including accelerating penetration of our Exchange Solutions platform into the fast growing middle-market. We also expect to realize substantial efficiencies by bringing our two organizations together, and have a well-defined integration roadmap to capitalize on identified savings, ensure the strongest combination of talent and practices, and realize the full benefits of the merger for all of our stakeholders.

“Importantly, our organizations share a client-first mentality and a focus on providing services and solutions that consistently exceed clients’ expectations. As we bring these two companies together, we are confident associates across both organizations will enjoy increased development opportunities as part of a stronger and more global growth company.”

Dominic Casserley, Willis CEO, added; “These are two companies with world-class brands and shared values. The rationale for the merger is powerful – at one stroke, the combination fast-tracks each company’s growth strategy and offers a truly compelling value proposition to our clients. Together we will help our clients achieve superior performance through effective risk, people and financial management. We will advise over 80% of the world’s top-1000 companies, as well as having a significant presence with mid-market and smaller employers around the world.

“We look forward to bringing Towers Watson’s innovative solutions to our clients alongside our broking and advisory services. The opportunity to deliver significant savings to our growing middle market client base with Towers Watson’s market-leading private exchange platform is particularly attractive.”

Interestingly, and perhaps given the Steve Hearn exit announced yesterday, Towers Watson leaders will take the top spot at Willis Towers Watson.

James McCann will become Chairman, John Haley will be Chief Executive Officer and Dominic Casserley will be President and Deputy CEO. The new company’s board will consist of 12 directors in total, with six nominated by Willis and six by Towers Watson, including Towers Watson’s and Willis’ current CEOs. Additionally, Roger Millay will be CFO.

Dominic Casserley and Gene Wickes from Towers Watson have been chosen to oversee the Integration Team.

Such a large merger is likely to bring with it some level of uncertainty among other brokers and the staff of both Willis and Towers Watson. There will be limited crossover between the two firms, given Towers Watson had exited the pure re/insurance broking business, but mergers will always bring job losses and also staff jumping ship for alternatives.

The merger also presents an interesting possible synergy for reinsurance and insurance-linked securities (ILS), with Towers Watson having a huge asset advisory team that deals with pension fund advisory, and Willis having a leading reinsurance broking and capital markets unit.

It will be interesting to see whether this huge deal stimulates other M&A activity in the broking space.