Gallagher advances European strategy by five years with WTW deal, says CEO

Arthur J Gallagher is used to buying and integrating rival brokers, having completed more than 500 transactions in the past 20 years, but its agreement last week to buy a slew of Willis Towers Watson (WTW) assets for $3.57bn is in a different league, and has sped up its European strategy by five years, the firm’s top executive said. And the process was 100% virtual. “That’s not comfortable for me,” J Patrick Gallagher Jr, chairman, president and CEO of Gallagher, said in an interview on Thursday. “I am a guy that likes to do dinner and likes to sit around in your office and look at you when I ask, ‘Do you want to do this deal?’” But amid the ongoing pandemic, the Gallagher acquisition team was able to connect virtually with WTW leaders and others over a six- to eight-week period to discuss their expectations, possible other moves and opportunities the WTW staff could have with Gallagher, he said. “We did it virtually and I think we did it very well,” he said, as first reported in Business Insurance. The deal, which Mr Gallagher described as “seminal” for the brokerage, is Gallagher’s largest since it was founded more than 90 years ago and significantly expands its reinsurance and international operations. Gallagher will acquire WTW businesses generating about $1.3bn in annual revenue. Analysts commenting on the deal were largely positive, saying the pricing ratio of ten times earnings was relatively low and the opportunistic purchase will enable Gallagher to compete more effectively with its larger rivals. The opportunity for the deal arose when regulators in Europe, the US, Australia and Singapore raised antitrust concerns over Aon’s agreement to buy rival WTW. That deal, which is expected to be completed in the second half of 2021, will propel Aon from the world’s second-largest brokerage to the biggest, ahead of Marsh McLennan. If the deal had gone ahead unchallenged, it would also have left the reinsurance market with just two big reinsurance brokers, with the Aon-WTW operations significantly larger than Marsh McLennan’s Guy Carpenter reinsurance broking unit. Gallagher started a reinsurance brokerage operation from scratch 15 years ago but it was not successful. It had more success via a 2013 collaboration with former Benfield CEO Grahame Chilton. Gallagher took full control of the joint venture in 2020 and rebranded it Gallagher Re. It climbed to be the fifth-largest reinsurance brokerage but remained a fraction of the size of Aon, Guy Carpenter and WTW. “This puts us at the table. We are going to be in the top three,” Mr Gallagher said. The deal to buy much of Willis Re will add about $750m in annual reinsurance brokerage revenue to Gallagher Re, as well as about 2,300 staff and operations in 27 countries. Gallagher Re will remain some distance behind Guy Carpenter and Aon Re in size but it will be several multiples bigger than other reinsurance broking rivals. The reinsurance broking business holds various attractions, Mr Gallagher said. Reinsurance is “at the heart of capital formation and capital preservation and management for the trading partners we have”, and having reinsurance capabilities helps Gallagher provide services to those insurers, Mr Gallagher said. In addition, the reinsurance market is a “hub of creativity”, providing capacity to cover emerging and large risks and additional capacity for Gallagher’s existing managing general agency business, he said. The purchase will also provide Gallagher with additional data and analytics capabilities, added its CEO. “Especially for large multinational risk management accounts, knowing what’s going on in the reinsurance market makes a difference,” Mr Gallagher said. While the discussions with Aon began around the sale of reinsurance broking business, the purchase of the other WTW assets, including Gras Savoye in France, will also speed up Gallagher’s growth, he said. “Our strategy for Europe has been advanced by five years. I think we are getting the best name and the best broker in France,” Mr Gallagher said. Operations in other European countries, including Germany, the Netherlands and Spain, also offer “a good indigenous presence; and there’s a great opportunity to continue doing bolt-on acquisitions,” he added. Gallagher began a significant international expansion seven years ago with deals in Australia and the UK. WTW broking operations that Gallagher is buying in the UK, US and Bermuda will be merged into its existing businesses. Depending on regulatory requirements, the sale, which is contingent on the Aon-WTW deal completing, could include more WTW business. “Typical of these remedy programmes, there is an accordion feature, which means they can put to us other operations that may be troublesome for the (Department of Justice), and we’ve agreed upfront to take those… That’s limited to $200m in revenue,” Mr Gallagher said. The agreement to buy such a large swathe of businesses in one deal will not affect Gallagher’s traditional acquisition strategy, in which it acquires dozens of smaller brokers a year, Mr Gallagher said. “Our tuck-in acquisition strategy is what is building the company globally and it works,” he said. Gallagher is raising debt and equity to help fund the WTW deal. For further news from Business Insurance, please click here.

Gallagher advances European strategy by five years with WTW deal, says CEO

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