Gallagher to pay $3.57bn for Aon-WTW divestments

Arthur J Gallagher will pay $3.57bn to acquire Willis Re, parts of Willis Towers Watson’s (WTW) Corporate Risk & Broking (CRB) business in Europe and the US and some health/benefits operations being sold to satisfy European Commission (EC) antitrust regulators, in what is being seen as a decisive step towards closing the Aon-WTW transaction.

Aon and WTW confirmed in a joint statement that the divestments address questions raised by the EC about the agreed $30bn all-stock deal – the largest M&A transaction in the history of insurance broking. 

They added that the deal is also intended to address certain questions raised by regulators in other jurisdictions and said the firms are working towards obtaining regulatory approval in all relevant jurisdictions, including the US.

The firms also said today the transaction’s closing will now slip into the third quarter subject to final regulatory sign-off.

The parties had initially targeted a close in the first half of 2021 subject to regulatory approvals being secured.

Aon CEO Greg Case said the agreement “demonstrates strong momentum on the path to close our proposed combination with Willis Towers Watson”.

He added: “We’ve used this time to align our future leadership team around a one-firm culture that will create new opportunities for colleagues, accelerate innovation on behalf of clients and deliver shareholders the long-term value creation they have come to expect from our team.”

WTW CEO John Haley added: “We announced this combination knowing that the complementary capabilities of our two firms would allow us to deliver more value to clients and opportunities for colleagues. The events of the last year have only reinforced that rationale, and this announcement is an important step toward realising that potential”.

Haley concluded by praising the WTW employees who will transfer to Gallagher. “We appreciate the extraordinary value these colleagues have delivered to our clients and our company. We are confident they have a bright future at Gallagher.”

Rolling Meadows, Illinois-based Gallagher in the last month emerged as the clear favourite to buy all of the P&C assets on the block, after initially being identified as the likeliest home for a Willis Re divestment. 

And in the announcements today the parties confirmed all of the P&C divestment assets previously detailed by this publication are part of the transaction.

They include Willis Re and part of the facultative business previously housed in WTW’s insurance broking business.

The Willis Re treaty and WTW fac business represent by far the biggest portion of the revenues being divested. Willis Re treaty revenues amounted to $748mn in 2020, with the third-party (Global cedant) fac revenues estimated to add an additional ~$150mn.

WTW CRB assets sold to Gallagher include the firm’s French, German, Dutch and Spanish insurance broking operations, comprising P&C, Finex and cyber businesses based in those countries.

They also include the broker’s CRB European Economic Area Finex and P&C business for large multinational clients (LMCs) headquartered in the quartet of countries, and a portion of WTW’s CRB Finex UK business with LMCs.

To complete the divestments in the EC package, WTW has agreed to sell its CRB cyber specialty business in the UK and its global CRB unit for aerospace manufacturing and space risks.

As previously revealed by The Insurer, divestments to satisfy the Department of Justice (DoJ) include certain CRB accounts placed in WTW’s San Francisco and Houston offices, as well as the firm’s Bermuda retail business.

Momentum with regulators

Confirmation of the divestments deal comes after significant momentum in recent weeks in negotiations with the EC and DoJ in the US.

As previously reported by this publication, there were strong signs at the end of last week that the EC was set to greenlight the divestments proposed for the Aon-WTW transaction, with the regulator’s competition head Margrethe Vestager said to be supporting the remedy packages.

Approval of the remedies would be expected to lead to EC clearance of the deal without the issuance of a so-called Statement of Objections.

Sources have also talked of progress with the DoJ, despite the US government department’s antitrust division currently being without a leader.

The CRB offices sold in the divestment package to Gallagher were seen as a surgical approach to target any concerns of the DoJ.

They added that competition regulators on both sides of the Atlantic are likely to have been closely monitoring the actions of their counterparts and typically are not expected to dramatically diverge in their approaches.

As reported last week, history suggests that the DoJ will fall in behind EC regulatory approval as the Aon-WTW transaction nears the finish line.

Any competition concerns around Willis Re in the US have now been addressed by the sale to Gallagher.

Meanwhile the large account segment of the commercial insurance industry in the US arguably has more inherent competition than Continental Europe, with several established retail brokers such as Lockton, Gallagher and Alliant, and challenger firms such as NFP and CAC Specialty.

As it stands, however, the DoJ’s investigation continues. In today’s statement, Aon said the announcement “resolves questions raised by the European Commission and is intended to address certain questions raised by regulators in other jurisdictions. Aon and Willis Towers Watson continue to work toward obtaining additional regulatory approval in all relevant jurisdictions, including the United States, where regulators are conduction an independent review of the Aon and WTW combination”.

The Insurer comment

Aon now looks set to win its prize but the price is that it is buying less of WTW’s insurance broking operations than it expected because of the strident approach of some regulators, most prominently the EC. This has also impacted the timing of a transaction which is already long-drawn out.

Nonetheless, it is still a landmark deal – the largest in the history of broker M&A – and catapults Aon back into the #1 position by revenues. Aon CEO Greg Case has a deserved reputation for striking M&A deals and squeezing costs and delivering operational efficiencies from them. You would be certificable to bet he won’t do the same here when it closes later this year.

But it is also a landmark transaction for Gallagher, which – in many respects – has swapped places with WTW to become, in effect, the industry’s third global insurance broker. It is an extraordinary development for the Illinois-headquartered firm.