The insurance industry is only just coming to terms with the jolt that was the collapse of the proposed Aon-Willis Towers Watson mega-merger, but another major acquisition is already on the cards. Arthur J. Gallagher & Co. (Gallagher) has today announced an agreement to acquire the treaty reinsurance brokerage operations of Willis Towers Watson plc.
The deal is expected to close during the fourth quarter of 2021 and is subject to customary regulatory approvals.
Commenting on the deal, J. Patrick Gallagher, Jr., chairman, president and CEO of Gallagher highlighted that broadening its reinsurance brokerage offerings has been a strategic objective for the group and that the deal will “significantly enhance” its 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,” he said. “I look forward to welcoming the 2,200 new colleagues joining us as part of this transaction to our growing Gallagher family of professionals.”
As per the terms of the deal, the acquired operations include all of Willis Re’s treaty reinsurance brokerage operations. For full-year 2020, these operations generated US$745 million of estimated pro forma revenue and US$265 million of estimated pro forma EBITDAC. Willis Re’s treaty reinsurance business serves the market in 24 countries, represents over 750 insurance and reinsurance company clients and places over US$10 billion of premium annually.
Key transaction terms
The transaction will see Gallagher acquire the combined operations for an initial gross consideration of US$3.25 billion (around NZ$4.63 billion), and potential additional consideration of US$750 million subject to certain third-year revenue targets.
Gallagher will look to finance the deal using cash on hand, including the US$1.4 billion of net cash raised via its May 17, 2021 follow-on common stock offering and the US$850 million of net cash borrowed via its May 20, 2021 30-year senior note issuance, short-term borrowings and additional free cash generated before close. The funding contemplates Gallagher maintaining its investment-grade debt rating.
The integration of the two businesses is expected to take approximately three years with total non-recurring integration costs estimated to be approximately US$250 million.
Benefits of the acquisition
Exploring the advantages of the deal in a Press release, Gallagher noted that its purchase will offer it an expanded global value proposition within reinsurance brokerage, as well as the addition of a talented management team, and increased product breadth and offerings.
Other key benefits include the broad suite of analytics capabilities boasted by Willis Re’s treaty reinsurance brokerage operations, the further leveraging of Gallagher’s industry-leading alternative risk and ILS business, and strengthened relationships with major insurance carriers.