Willis reinsurance business is well worth the increased value: Gallagher CEO – Enterprise Insurance
Arthur J. Gallagher & Co. will pay significantly more for Willis Towers Watson PLC's reinsurance brokerage business if the second iteration of the deal goes as planned, but the acquisition will advance Gallagher in many ways, its top manager said.
The addition of Willis' reinsurance treaty business will enhance Gallagher's capabilities in other businesses and propel Gallagher into the top tier of the reinsurance brokerage sector, said J. Patrick Gallagher Jr., the company's chairman, president and CEO, in an interview Friday.
The announcement came following an earlier agreement by Gallagher to buy the reinsurance business from Willis and various other insurance brokers for approximately ten times the pro forma profits of the businesses. The previous deal was contingent on Aon PLC's plan to buy Willis, but that was thwarted by government objections. The Gallagher-Willis deal also requires the approval of multiple regulators.
Although Gallagher will pay a higher multiplier on the Willis deal in the second deal – roughly 11.9 times profit on a pro forma basis – that's still good deal, Gallagher said.
“That was an expensive business for us; we are very happy, we think it's fair, ”said Mr. Gallagher.
Willis' reinsurance business is self-contained, has a successful track record, good growth strategies and an excellent management team, he said.
“This is not a fixer upper and it is not about saving synergies. This is a world class opportunity and a world class team and we see this as our chance to play as a great reinsurance broker, ”said Gallagher.
Gallagher is currently fifth in Business Insurance's reinsurance broker rankings with annual sales of $ 100 million, but when combined with Willis Re it becomes the third largest broker with annual sales of nearly $ 1 billion.
In addition, Gallagher's retail customer services will be enhanced with significantly more reinsurance capacity, he said.
For example, Risk Placement Services Inc., Gallagher's managing general agency business, will have access to more reinsurance resources, he said.
"There is nothing an MGA needs more than their reinsurance relationship," said Gallagher.
All Willis Re senior executives will join Gallagher, and James Kent, Willis Re's global CEO, will lead the combined reinsurance activities of Gallagher and Willis, Gallagher said.
Gallagher expects to spend $ 250 million in integration costs, including Willis Re's employee retention. Rivals have recruited numerous brokers from all areas of Willis since the announcement of the Aon deal in March 2020.
“We sat down with over 200 people and said: 'Here's a retention package'. We have always believed in using our equity in these packages and in our long-term incentives. … We made sure they know they have a huge stake in our company if they stay with us, ”said Mr. Gallagher.
And the purchase won't interrupt Gallagher's longstanding "tuck-in" acquisition strategy of buying multiple smaller brokers each year, he said.
"Our appetites haven't diminished at all, and it doesn't diminish our ability to close at all," he said.