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Arthur J. Gallagher & Co.’s $3.57 billion purchase of a slew of assets from Aon PLC and Willis Towers Watson PLC will be “a seminal moment” for the brokerage, its top executive said Wednesday.
The deal will add about $1.3 billion in annual revenue to Gallagher and greatly expand its reinsurance business, positioning it as the world’s third-largest reinsurance intermediary. The deal, which includes longstanding French broker Gras Savoye SA, will add significant business in Europe and some business in the United States.
The deal comes after regulators in the European Union pressured Aon to sell various business units to secure antitrust approval of its proposed purchase of Willis Towers Watson, which was announced in March 2020. Gallagher, which purchased Jardine Lloyd Thompson PLC’s aerospace business in 2019 after regulators reviewed Marsh & McLennan Cos. Inc.’s proposed acquisition of JLT, has long been seen as the most likely buyer of Aon-Willis assets.
The reinsurance business of Willis is “the jewel of the transaction,” said J. Patrick Gallagher Jr., chairman, president and CEO of Gallagher, on a conference call with analysts Wednesday. The $750 million in annual reinsurance revenue from Willis Re is about seven times Gallagher’s current reinsurance revenue.
The deal includes most of Willis Re’s treaty and facultative operations, some U.K. specialty operations – including cyber, financial lines, space and aerospace – and brokerage operations in France, Spain, Germany and the Netherlands, and some U.S. brokerage operations (see chart).
More than half the European business Gallagher is acquiring is in France. The U.S. portion of the deal accounts for $50 million in revenue in niches such as construction and energy. It also adds 100 staff in Houston, San Francisco and Bermuda.
The deal will expand Gallagher’s annual revenue from $6 billion to $7.3 billion, which will consolidate its position as the world’s third-largest brokerage, if the Aon-Willis deal closes as expected. The deal will also expand the international share of Gallagher’s business to 40% of its revenue from 32%.
The purchase was made on “financially attractive” terms with Gallagher paying 10 times 2020 estimated pro forma earnings before interest, taxes, depreciation, amortization and coronavirus, Mr. Gallagher said.
Gallagher will use a combination of long-term debt, short-term borrowings, free cash and common equity to fund the deal, said Douglas K. Howell, chief financial officer.
The deal should not affect Gallagher’s overall mergers and acquisitions strategy, he said.
“We do not want this transaction to slow our ongoing tuck-in M&A strategy. Tuck-in acquisitions are an integral part of our growth story,” he said.
On Gallagher’s earnings call earlier this month, Mr. Howell said the brokerage had about $2.5 billion available for tuck-in acquisitions. Gallagher has long been one of the most acquisitive brokers.
The deal to buy the Aon-Willis assets is expected to close early in the second half of 2021, “perhaps as early as July 1,” Mr. Howell said. Aon previously said it expected to close its purchase of Willis in the first half of 2021 but said Wednesday that it now expects to close the deal in the third quarter of the year.