Arthur J. Gallagher has agreed to acquire certain Willis Towers Watson (WTW) reinsurance, specialty and retail brokerage operations as part of a proposed regulatory remedy for the pending Aon and WTW combination.
The transaction is expected to close during the H2 of 2021.
In March 2020, it was announced that Aon was set to buy WTW in an all-stock transaction with an implied combined equity value of approximately $80 billion.
But in December last year, the European Commission opened an in-depth investigation to assess the proposed acquisition of WTW by Aon over concerns that the proposed transaction could significantly reduce competition in those markets.
As part of Gallagher’s acquisition, the reinsurance brokerage operations, which include both treaty and facultative reinsurance, generated approximately $750 million of estimated pro forma revenue for the year ended 31 December 2020.
The business represents over 750 insurance and reinsurance company clients, across more than 25 countries, and places over $11.5 billion of premium annually.
The UK and European brokerage operations generated approximately $500 million of estimated pro forma revenue for the year ended 31 December 2020, which includes certain operations in Germany, Netherlands, Spain and France, including the vast majority of a French insurance broker, Gras Savoye.
The specialty operations in the UK principally include cyber, space and aerospace products.
The North American brokerage operations generated approximately $50 million of estimated pro forma revenue for the year ended 31 December 2020.
This includes certain property/casualty brokerage business from predominantly middle-market and large-account clients located in select markets such as San Francisco, Houston and Bermuda, across niches such as construction and energy.
Under the agreement, Gallagher will acquire the combined operations for a gross consideration of $3.57 billion. Gallagher expects to finance the transaction using a combination of long-term debt, short-term borrowings, free cash and common equity. The final funding contemplates Gallagher maintaining its investment grade debt rating.
Integration is expected to take approximately three years with total non-recurring integration costs estimated to be approximately $350 million.
After giving effect to these assumptions and pro forma results discussed above, the acquired operations would have been approximately 9 per cent to 11 per cent accretive to Gallagher's 2020 adjusted GAAP EPS excluding earnings from clean energy investments.
Commenting on the transaction, Patrick Gallagher, chairman, president and CEO, says: "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.”
He adds: "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."
The transaction is subject to the European Commission, US Department of Justice and other regulatory approvals, including regulatory approvals related to the pending Aon and WTW combination.
