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The transformative merger that created Willis Towers Watson P.L.C. is an ongoing project but, if executed successfully, should position the firm to better compete with its larger rivals.
The $18 billion deal, which brought together London-based brokerage Willis Group Holdings P.L.C. and New York-based consulting firm Towers Watson & Co., was completed in January, but the combined organization is still going through the process of merging its operations.
Billed as a merger of equals, the deal created a firm that more closely resembles larger rivals Marsh & McLennan Cos. Inc. and Aon P.L.C., which both have extensive brokerage and consulting operations.
“The industry leaders in insurance brokerage and consulting services are Marsh, Aon, and now Willis Towers Watson,” said Bruce Ballentine, senior analyst at Moody's Investors Service Inc., although he noted that with gross revenue of $8.15 billion, Willis is still smaller than Marsh & McLennan and Aon by some margin. Despite the merger, Willis Towers Watson remains No. 3 in the 2016 Business Insurance ranking of the world's largest brokers with 2015 brokerage revenue of $8.12 billion.
Mr. Ballentine said that “these are two powerful companies, and there are complementary aspects to the business ... One historically is stronger in property/casualty, the other, historically, in employee benefits and related advice.”
Mr. Ballentine said the strengths and opportunities of the combined company are tempered by the integration risk of such a large merger, adding to the challenges of legacy Willis' existing restructuring program and its recent acquisition of Paris-based broker Gras Savoye & Cie., the largest brokerage in France.
CEO John Haley, who previously headed Towers Watson, acknowledged that the preparation for a merger can be a tense period.
“You go through six months of putting all the details together and actually getting started working as one company,” he said, “and there's a bit of nervousness, just waiting to get things started. But now I think there's a lot of excitement from our colleagues all around the world.”
Mr. Haley said historically when brokers and consulting firms have come together, “they've tended to go to market in a separate fashion.”
“One of the things that we were thinking about bringing together two roughly equal-sized firms,” he said, was “maybe it makes it a little easier to package things together where you're looking at both sides ... and you're going to market that way.”
Mr. Haley said the management team of the company's operating committee is made up of 14 people, with half coming from the Towers Watson side and half from the Willis side. Dominic Casserley, formerly CEO of Willis, is president and deputy CEO of the merged firm.
“That creates a different feeling,” he said. “The Willis people don't feel like they're being taken over, the Towers Watson people don't feel like they're being taken over, and both sides are working to create an environment across lines. The reason we think we can do that where others have failed is because we're not absorbing one organization into another. We're creating a new one that's the logical successor to both of the other ones.”
The new entity also has an expanded international reach: In December, Willis completed its long-planned acquisition of Paris-based broker Gras Savoye. The acquisition extended the new company's reach to 120 countries and brought staffing up to 39,000 employees.
“When we did the merger on Jan. 4,” Mr. Haley said, “we were really bringing together all three of those organizations. Gras Savoye was really significant in terms of scale.”
“We're in the beginning of the integration period, which lasts until December 2018,” the company said in an email. “Our position redundancies have occurred primarily in the corporate functions, and we don't expect many across business operations. Other cost measures include real estate consolidation and procurement/vendor savings.”
In the search for revenue streams, Mr. Haley said the company is looking to introduce Willis brokers to some of the contacts that Towers Watson traditionally had in the large-company market. In addition, he said the company believes that offering its health care exchanges to the middle market through the Willis brokers will provide additional revenue.
“We have a global health business that is very much like the exchanges that Towers Watson has been rolling out with a different broker,” he said. “Now we'll be rolling that out with Willis, and the early signs for that are very, very positive”
Mr. Haley also said cyber insurance is a new area of business, adding that the company has completed several placements for large financial organizations in the past few months.
Private equity-backed buyers again dominated the insurance brokerage merger and acquisition landscape during the first half of 2016, but their share declined slightly amid increased activity by privately held and bank-owned brokers.