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Aon's Willis purchase goes closer when Gallagher gets the benefit



Arthur J. Gallagher & Co .: $ 3.57 billion acquisition of various Willis Towers Watson PLC companies helps Aon PLC secure its much larger deal to buy Willis and enables Gallagher to expand its business significantly at a relatively low purchase price, analysts. say.

The widely anticipated Gallagher deal, announced on Wednesday, includes most of Willis' reinsurance business, which would make Gallagher the No. 3 broker in an area it has only begun to compete significantly in recent years, adding retailers in France and several other European countries as well as some specialty companies in the United States.

The announcement comes after EU regulators pressured Aon to sell various companies to secure antitrust approval of its purchase of Willis, which was announced. in March 2020.

Gallagher will acquire companies representing approximately $ 1

.3 billion in annual revenue with $ 357 million in profit before interest, tax, depreciation, amortization and coronavirus and more than 6,000 employees. Approximately $ 750 million relates to reinsurance income, $ 500 million to European insurance broker income and $ 50 million to North American income.

J. Patrick Gallagher Jr., President, President and CEO of Gallagher, told analysts on Wednesday that the agreement was a "groundbreaking moment" for the broker.

Gallagher, the longtime fourth-largest broker, was already poised to become the world's third-largest broker with the completion of the Aon-Willis deal. The proposed acquisition of Aon-Willi's assets will drive its annual revenue to over $ 7 billion compared to $ 5.99 billion by 2020.

Aon said in a statement that the deal "resolves issues" arising from the European Union and will also to address concerns raised by regulators in other jurisdictions, including the United States. The deal with Gallagher is dependent on the Aon-Willis deal being terminated. Gallagher said he expects to close the deal with Aon and Willis in the second half and "maybe as early as July 1."

Aon said that under the terms of the deal to buy Willis companies, Gallagher will acquire:

  • Willis Re, excluding operations in China and Hong Kong.
  • Global cedent optional reinsurance, excluding operations in China and Hong Kong.
  • Willis & # 39; Inspace unit, which covers space risks, and some aviation industry.
  • 19659010] Corporate risk and brokerage services in France, Germany, the Netherlands and Spain, excluding affinity activities; Bermuda; cyber in the UK; and certain accounts in Houston and San Francisco.
  • Corporate risk and brokerage services for property / accident and financial lines within the European Economic Area, UK, USA, Brazil and Hong Kong related to certain large multinational companies headquartered in France, Germany, the Netherlands and Spain.
  • Corporate risks and brokers financial accounts related to certain large multinational companies headquartered in the United Kingdom
  • Health and benefits business units in France, Spain and Germany.

The purchase price of ten times EBITDAC is relatively low compared to the valuations of other brokers, which can go as high as 14 times for some companies, says Timothy J. Cunningham, CEO of Optis Partners LLC, a Chicago-based investment banking and financial advisory firm .

"It reflects, Aon has to do it, it can do it with a buyer, and it can do it relatively quickly," he said.

In an open market transaction, Willis' assets would likely have been sold for a higher multiple, said Joe Marinucci, primary credit analyst at Standard & Poor & # 39 ;s Global Ratings, in New York.

"Under these circumstances, you have a highly motivated seller and motivated buyer who wants to develop the scale and presence beyond its core in North America. … It's a good deal, in part because of the fact that there are not many buyers," he said.

Gallagher acquires Willis' assets at a "good price", Elyse Greenspan, CEO of stock research for property / accident insurance at Wells Fargo Securities LLC in New York, wrote in a note to clients on Wednesday.

Gallagher was expected to become a leading bidder for Willis' assets, which was expected to "help them from a pricing perspective," according to the Wells Fargo note.

"The multiples of 2.75x revenue and the 10x EBITDA screen are good compared to 3x revenue and double-digit EBITDA that we usually see with larger businesses," Greenspan wrote in the note.

This deal will essentially make Gallagher the "Big Three" broker for Aon and Marsh & McLennan Cos Inc., which is expanding its reinsurance and international presence, according to Wells Fargo analysts. expectations of significant cost savings and possible revenue synergies (albeit with some immediate business-related headwinds) ", wrote Meyer Shields, Baltimore-based CEO of Keefe, Bruyette & Woods, in a note

Aon said it still expects to reach 800 million dollars in cost savings through the deal.

"We suspect that Aon is no longer expected to achieve the adjusted EPS growth of 0-5% and 5-10% that was originally expected in years 1 and 2" by the combined Aon-Willis, wrote Mr. Shields.


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