Sources told this publication that the two parties were nearing an agreement and a transaction could be signed and announced as soon as the middle of this week, although they stressed talks could still break down.
Terms of the transaction are not known, but it is understood that Gallagher will pay materially more than the implied 9x Ebitda multiple of its $3.6bn broader remedies package deal with Willis. If Gallagher was bid up to 12x-13x Ebitda – still a discount, though, to a platform-type multiple of ~15x – then this would point to a valuation in excess of $3bn.
Gallagher had been set to acquire Willis Re as part of a follow-on M&A transaction to satisfy antitrust concerns held by the European Commission, but the deal was contingent on the close of the broader Aon-Willis deal which was terminated last week after an impasse was reached with the US Department of Justice.
The deal between Gallagher and Willis was formally terminated, but the 16-month Aon-Willis transaction odyssey has effectively severed the ties of loyalty between Willis and the leadership team of Willis Re.
As such, Willis CEO John Haley has been under sharp pressure to find an M&A solution for the business as a means of forestalling a wave of resignations and client defections that could have severely impacted the value of the reinsurance broking unit.
The news that it has decided to conclude a deal with Gallagher rather than looking to retain the business, or seeking to spin it off via an auction to the high-bidder, suggests that Willis decided to embrace a lower-risk approach following its high-risk original deal with Aon. (For full analysis see: "Is Haley really going to spin the wheel again on Willis Re?")
Details are still scarce on the pending deal, but with regulators no longer there to force hands, it would be a surprise if the cedant fac business – housed within Willis' insurance business – is bundled in with treaty reinsurance.
The timing of Willis' second-quarter earnings call tomorrow could prove awkward, with a sprint currently underway to finalise the transaction, but M&A typically taking longer to execute than desired.
Before the collapse of the Aon-Willis deal, Gallagher had looked set to secure a once-in-a-generation windfall by seizing the opportunity to buy the reinsurance broking and continental European insurance broking businesses of Willis at highly discounted multiples.
That opportunity evaporated with the deal, but Gallagher still stands to win big through a highly strategic acquisition of one of the three leading reinsurance broking franchises.
Reinsurance broking is a highly consolidated marketplace, with upwards of 80% controlled by Aon, Guy Carpenter or Willis Re, and a raft of challenger brokers looking to break up the oligopoly which seemed for a time as if it could become a duopoly via the Aon-Willis merger.
Overnight, Gallagher will move from the tier of challenger broker to being a very well established number three, multiples of the size of fourth-placed player TigerRisk.
Willis declined to comment. Gallagher did not immediately respond to a request for comment.
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