ROLLING MEADOWS, Ill. — Arthur J. Gallagher & Co. (NYSE: AJG) today announced an agreement to acquire the treaty reinsurance brokerage operations of Willis Towers Watson plc. The transaction is expected to close during the fourth quarter of 2021.
“Broadening our reinsurance brokerage offerings has been a strategic objective at Gallagher and this acquisition will significantly enhance our global value proposition,” said J. Patrick Gallagher, Jr., Chairman, President and CEO. “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.”
Benefits of the acquisition are expected to include:
- Expanded global value proposition within reinsurance brokerage
- A broad suite of analytics capabilities including actuarial services, catastrophe modeling, dynamic financial analysis, rating agency analysis and capital modeling
- Addition of talented management team
- Increased product breadth & offerings
- Further leveraging of Gallagher’s industry-leading alternative risk and ILS business
- Strengthened relationships with major insurance carriers
The operations include all of Willis Re’s treaty reinsurance brokerage operations. For the year ended December 31, 2020, these operations generated $745 million of estimated pro forma revenue and $265 million of estimated pro forma EBITDAC. The pro forma 2020 figures include revenues reported in Wills Re’s 2020 unaudited financial information, and reflect known growth, as well as Gallagher’s estimate of “breakage”, defined as known lost business and the departure of key brokers and other employees, as well as normalization of operating expenses and additional investments. Willis Re’s treaty reinsurance business operates in 24 countries, places over $10 billion of premium annually and represents over 750 insurance and reinsurance company clients.
Key Transaction Terms
Under the agreement, Gallagher will acquire the combined operations for an initial gross consideration of $3.25 billion, and potential additional consideration of $750 million subject to certain third-year revenue targets. Gallagher intends to finance the transaction using cash on hand, including the $1.4 billion of net cash raised via its May 17, 2021 follow-on common stock offering and the $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.
Integration is expected to take approximately 3 years with total non-recurring integration costs estimated to be approximately $250 million. After giving effect to these assumptions and pro forma results discussed above, the acquired operations would have been approximately 5% accretive to Gallagher’s 2020 adjusted GAAP EPS excluding earnings from clean energy investments and 9% accretive to Gallagher’s 2020 adjusted GAAP EPS excluding amortization and earnings from clean energy investments (see table for 2020 non-GAAP reconciliation).
Other Acquisition Transaction Information
The transaction is subject to customary regulatory approvals. More information, including a presentation outlining the transaction, can be found on the company’s website at www.ajg.com. The estimates provided in this release and the presentation on the company’s website, may be updated before the transaction closes as more information becomes available.
Conference Call Information
In conjunction with this announcement, J. Patrick Gallagher, Jr., Chairman, President and CEO, will host a conference call on Friday, August 13, 2021 at 8:30 am ET/ 7:30 am CT.
The conference call will be broadcast live through Gallagher’s website at www.ajg.com and a conference call replay will be available on the company’s website approximately one hour after the broadcast. The replay can be accessed by going to Investor Relations and clicking on Events & Presentations.
Pro forma revenues – Pro forma revenues reflect Gallagher’s estimate of revenues reported in the acquired operations’ 2020 unaudited financial information, reflecting known growth, as well as “breakage”, defined as known lost business and the departure of key brokers and other employees.
Other Cost Adjustments – In addition, specific costs have been identified as adjustments to the acquired operations’ 2020 financial statements in order to better reflect Gallagher’s estimate of pro forma EBITDAC. Specifically, these cost adjustments include the normalization of operating expenses to reflect the extraordinary impact of the COVID-19 pandemic in 2020 and additional investments in operations attributed to the target business based on the estimated costs to provide specific services from the center.
Morgan Stanley & Co. LLC acted as a financial advisor to Gallagher on this transaction.
Source: Arthur J. Gallagher & Co.
“Some of the statements in this third party article may be forward-looking statements and perhaps even inaccurate statements. AgencyEquity or Strategic Agencies LLC does not make any representation or warranty, express or implied, as to the accuracy, completeness, or updated status of such statements. Therefore, in no case whatsoever will AgencyEquity or Strategic Agencies LLC be liable to anyone for any decision made or action taken in conjunction with the information and/or statements in this press release or for any related damages.”