WTW assets to expand Gallagher reinsurance value proposition: CEO

The Willis Towers Watson (WTW) reinsurance related assets that Arthur J. Gallager (AJG) is purchasing are set to significantly expand the brokerages global reinsurance value proposition, CEO Pat Gallagher has said.

AJG, or Gallagher’s acquisition of a package of divestment assets related to the Aon and Willis Towers Watson (WTW) merger had always been anticipated as the likely outcome, given AJG has been seen as the main contender and most likely home for such a large asset disposal.

The deal was revealed finally today, as Aon said that it and WTW have now reached an agreement with AJG, under which AJG will acquire some $3.57 billion of WTW assets, including the brokers reinsurance division Willis Re.

This acquisition will greatly expand AJG’s own Gallagher Re reinsurance broking arm, adding a significant amount of global expertise and reach.

J. Patrick (Pat) Gallagher, Jr., Chairman, President and CEO of AJG, explained today that this is an important acquisition for his firm.

“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,” Gallagher explained.

Adding that, “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.”

That’s a significant addition for AJG.

The company is very experienced in integration of smaller acquisitions, but this is a particularly large one for AJG and so it will be interesting to see how this proceeds, once all approvals are received.

Remember this is dependent on Aon’s acquisition of Willis Towers Watson completing as well, which is now slated for some time in Q3.

AJG has agreed to acquire certain reinsurance, specialty and commercial insurance brokerage operations, all as part of a proposed regulatory remedy to move the Aon and Willis Towers Watson combination towards approval by the European Commission and other jurisdiction regulators.

The reinsurance brokerage growth will be significant for AJG, with its Gallagher Re unit now set to merge with the majority of Willis Re.

Overall, the divestment package is said to account for generation of some $1.3 billion of estimated pro forma revenue and $357 million of estimated pro forma EBITDAC, in each case for the year ended December 31, 2020.

So that’s less than 10 times EBITDAC, which is far lower than other recent broker acquisitions.

It’s also lower than the figure we’d heard had been offered for Willis Re by another broking house months ago. But presumably, for Aon and WTW it is better to get the sale done as cleanly as possible and in one go, than looking to maximise profits from it.

These figures are some what lower than where analysts had been talking about the package revenue potential being.

AJG said that the Willis Re treaty and facultative reinsurance operations it is buying generated around $750 million of estimated pro forma revenue for the year ended December 31, 2020.

It represents over 750 insurance and reinsurance company clients, across more than 25 countries, and places over $11.5 billion of premium annually, the broker said.

Again, that’s some way lower than where estimates of Willis Re’s revenues have been placed, which have been pegged around $1 billion all-in.

But valuations and reporting aside, the acquisition propels Gallagher Re to be a much larger reinsurance brokerage and brings it additional specialties that should see the company accelerate its growth in this core area.

AJG has also announced an offering of 9,000,000 shares of its common stock, along with underwriter options for an additional 1,350,000 shares of common stock, the proceeds of which are to help fund some of this acquisition of WTW assets.

At AJG’s current share price, which stands at $148.5 at this time, having fallen about 1.5% since the open, this could raise somewhere over $1.5 billion towards paying for the WTW assets.

Also read:

– Aon & WTW agree $3.57bn sale of assets to Gallagher, including Willis Re.

– Gallagher likely buyer of $3bn Aon – Willis (WTW) divestments: Report.

– Aon expected to get conditional WTW acquisition approval from EC: Reuters.

– EC asks for feedback on sale of Aon / WTW assets, as MMC gains talent.

– Aon in proactive offer to US DOJ on Willis Towers Watson merger: Report.

– Aon – Willis Towers Watson divestiture reports expand to US & Bermuda.

– EC extends Aon – Willis Towers Watson merger deadline again.

– Aon – Willis Towers Watson merger deadline pushed back by EC.

– Aon – Willis Towers Watson merger assessed by Singapore competition authority.

– Aon & Willis Towers Watson merger may face EC statement of objection: Reuters.

– Aon & Willis Towers Watson merger to “significantly lessen competition”.

– Aon & WTW cite alt. capital, disintermediation & marketplaces in defence of merger.

– Aon & Willis Towers Watson reveal leadership of combined company.

– Willis Re divestment seen necessary for Aon – WTW merger to complete.

– If Aon / WTW leads to divestitures, AJG seen as “best fit” for Willis Re: KBW.

– EC investigates Aon / WTW deal, cites competition “concerns”.

– Aon + WTW to “extend proven model of catastrophe bonds” – CEO’s Case & Haley.

– Aon & Willis Towers Watson to merge.