Willis Towers Watson (WTW) continues to consider strategic options for the future of its reinsurance broking business Willis Re, the firm’s CEO John Haley explained just now.
Speaking during the Willis Towers Watson (WTW) second quarter earnings call, Haley said that he wanted to address the question of the future of the reinsurance broking unit, in the wake of the failed merger with Aon and the termination of the acquisition deal agreed with Gallagher.
Arthur J. Gallagher (Gallagher) had agreed to acquire WTW’s reinsurance unit Willis Re, as part of a package of divestitures needed to get the merger approved in Europe and other territories.
But then, after the merger was abandoned, the sale of Willis Re fell through with it, but now Haley has confirmed that a sale remains an option.
As we explained, that presented a potential option for Gallagher to continue its discussions with WTW, on the potential acquisition of Willis Re, a deal that propel Gallagher up to number three in the reinsurance broker rankings, far above position four.
Now, it appears that door is officially open, as WTW’s CEO John Haley confirmed that options for Willis Re are now being actively explored.
During the earnings call just now, Haley explained, “I’d also like to announce today that we’re conducting a review of strategic alternatives for Willis Re, our reinsurance operation.
“The board has authorised us and our advisors to initiate such a process.
“While we highly value the Willis Re platform and our colleagues who contributed to its success, we believe now is an appropriate time to explore strategic alternatives for this business.
“There can be no assurance the strategic alternatives review process will result in a sale of Willis Re, or other strategic change or outcome.”
Haley later also clarified that it is only the Willis Re business that WTW is looking at strategic alternatives for, so not any of the other units that had been agreed for divestiture under remedy packages.
It’s been widely reported in the last couple of days that Gallagher has indeed remained in active discussions with WTW over the future of Willis Re.
Clearly the broking group has the appetite to grow its reinsurance operation and acquiring Willis Re is likely one of the only options that could possibly see Gallagher achieving the kind of transformational growth such a deal would present.
Of the smaller reinsurance broking group’s, none would provide the growth opportunity to Gallagher of a Willis Re acquisition, plus it seems unlikely the other independent and smaller reinsurance brokers would want to be acquired at this time, given the way they have all been growing their businesses in attractive market conditions.
As a result, a Willis Re acquisition may be the only game in town, for Gallagher if it wants to become the third largest reinsurance broker.
However, a sale to Gallagher is in no way assured and WTW would be doing a disservice to its shareholders if it did not secure a much higher multiple for its reinsurance arm than the divestiture-driven deal would have provided.
There could also be other buyers out there, from existing smaller players with a capital injection, to private equity-linked, that could also be interesting options for WTW’s reinsurance unit.
Gallagher remains the most likely buyer though, being a natural fit with the firepower to close this deal.
It’s been suggested that a Willis Re deal of some sort could be imminent and of course we’ll update you should one be announced.