AJG acquiring Willis Re treaty reinsurance operations for $3.25bn

Arthur J. Gallagher & Co. has announced that it has agreed to pay $3.25 billion to acquire the treaty reinsurance brokerage operations of Willis Towers Watson’s Willis Re unit.

The announcement is not a surprise, as it was widely reported that Arthur J. Gallagher (AJG) was still in talks with Willis Towers Watson to buy its reinsurance broking unit, after the remedy-linked deal that had been agreed as part of the Aon and WTW merger process fell apart.

Gallagher was lined up to acquire a range of assets from Willis Towers Watson as part of the divestments needed to seal the Aon and WTW merger, including Willis Re.

After that Aon and WTW merger was abandoned, the potentially transformational acquisitions of reinsurance broking unit Willis Re and a range of major corporate broking units from WTW were taken away from Gallagher.

But AJG quickly rekindled the discussions directly with WTW and now an agreement has been made and Gallagher will now get the reinsurance broking growth it had been seeking, with the acquisition of all of the Willis Re treaty broking operations.

Commenting on the announcement of the acquisition, which is expected to close in Q4 2021, J. Patrick Gallagher, Jr., Chairman, President and CEO, said, “Broadening our reinsurance brokerage offerings has been a strategic objective at Gallagher and this acquisition will significantly enhance our global value proposition. We were very impressed with the Willis Towers Watson reinsurance professionals we met during our initial due diligence and strongly believe a combination will significantly enhance our offerings to clients and prospects. I look forward to welcoming the 2,200 new colleagues joining us as part of this transaction to our growing Gallagher family of professionals.”

For the year ended December 31st 2020, the operations being acquired generated $745 million of estimated pro forma revenue and $265 million of estimated pro forma EBITDAC.

The deal sees Gallagher acquiring the combined Willis Re treaty reinsurance brokerage operations for an initial gross consideration of $3.25 billion, with a potential additional consideration of $750 million subject to certain third-year revenue targets.

Willis Re’s treaty reinsurance business operates in 24 countries, places more than $10 billion of premium annually and represents in excess of 750 insurance and reinsurance company clients.

It’s a significant boost to the AJG reinsurance broking footprint of Gallagher Re, propelling it into third place on the reinsurance broking leaderboards, behind only Aon and Guy Carpenter.

Gallagher said it will fund this acquisition of most of Willis Re using cash on hand, cash raised from a recent stock offering and borrowed via asenior note issuance, as well as short-term borrowings and additional free cash generated before the close.

Integration of the Willis Re treaty reinsurance operations into Gallagher Re is expected to take three years, with integration costs of around $250 million expected.

AJG said the acquisition will expand its global value proposition within reinsurance brokerage, add to its analytics and catastrophe modelling capabilities, add a talented management team to its roster, increase the breadth of its product offerings, leverage its already impressive alternative risk and insurance-linked securities (ILS) businesses, while strengthening its relationship with major carriers as well.

It’s worth noting that the remedy package AJG had been lined up to buy out of the coming together of Aon and WTW, included much more than Willis Re’s treaty reinsurance operation and was only priced at $3.57 billion.

So here, it appears AJG is paying more for a lot less, while WTW is able to monetise its reinsurance unit for the benefits of its own shareholders, rather than just to smooth the way to a merger.

John Haley, CEO, Willis Towers Watson (WTW), commented on the deal reached, “Following the termination of the proposed combination with Aon, we have been taking time to reflect on what we have learned about WTW over the last 16 months and determine how we will move forward as an independent company. As part of this, we conducted a review of strategic alternatives for Willis Re, our global reinsurance business. While we highly value Willis Re and our colleagues who contribute to its success, we concluded that divestment was the appropriate path for this business and for WTW.

“We are excited about our go forward portfolio of businesses and believe we are well positioned to compete vigorously around the world and make investments to grow organically and inorganically. We are winning new business, bringing the best to our clients and actively engaging and recruiting talent. And, we are going to continue to innovate and adapt to address evolving client needs. We look forward to sharing more about our future plans during our upcoming Investor Day on September 9.”

It’s also been confirmed to us that AJG’s acquisition includes the Willis Re Securities ILS and catastrophe bond focused unit.