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WTW looks to increase acquisitions as valuations fall

Posted On: Oct. 27, 2022 10:19 AM CST

Carl Hess

Nearly a year after it completed the sale of its reinsurance business for an initial payment of $3.25 billion, Willis Towers Watson PLC expects to make some acquisitions of its own as prices of companies fall, its top executive said Thursday while discussing the brokerage’s third-quarter results.

WTW is also increasing its hiring, following an outflow of some high-profile executives during the uncertainty that surrounded Aon PLC’s abortive attempt to buy the brokerage.

Meanwhile, WTW’s revenue for the third quarter fell slightly, though organic revenue rose.

While WTW will continue to focus on share repurchases in its capital allocation strategy, the company will also look to make acquisitions to fill gaps in its capabilities, CEO Carl Hess said on a call with analysts.

“Valuations appear to be coming down from levels where we just didn't think that they could be value accretive to us,” he said. “There are opportunities across the span of the businesses we operate in.”

Mergers and acquisitions among insurance brokerages have surged in recent years although there are some signs that the volume of deals is coming off its highs as interest rates rise, among other reasons.

WTW also has increased its hiring after losing some senior brokers to rivals in 2020 and 2021.

“Our ongoing investments to retool our talent base are proceeding as expected. The pace of hiring in the third quarter matched that of the first half of the year,” he said.

WTW reported $1.95 billion in revenue in the third quarter, a 1% decrease from the same period last year. On an organic basis, which excludes the effect of foreign exchange, mergers, acquisitions and divestitures, revenue rose 6%.

Net income for the quarter fell to $192 million, compared with $907 million in prior-year quarter. Transaction and transformation program costs, following the sale of its treaty reinsurance business to Arthur J. Gallagher & Co. last year accounted for a significant amount of the profit reduction. Adjusted earnings before interest, taxes, depreciation and amortization for the third quarter totaled $408 million, down 2%.

WTW reported $765 million in revenue in its risk and broking sector in the third quarter, a 2.8% decrease from the prior-year period, but a 6% increase on an organic basis. Aerospace, natural resources and financial lines drove much of the organic growth, WTW said in its earnings statement.

Its health, wealth and career business reported $1.16 billion in revenue for the quarter, down less than 1% overall and up 4% on an organic basis.

In the third quarter, WTW completed the previously announced transfer of its Russian operations to local management. As a result of the deal, WTW lowered its 2024 revenue target to $9.9 billion or more from its previous target of $10 billion or more.