Merger keeps Willis busy as Aon prepares for acquisitions

14-02-2017

Christian Wuestner

Merger keeps Willis busy as Aon prepares for acquisitions

istocksdaily / istockphoto.com

A year on from the merger between Willis and Towers Watson and the broker is still working on its reorganisation whilst Aon is looking for M&A opportunities to deploy its growing cash holdings, executives suggested at separate brokers’ conference calls about their 2016 results.

Willis Group Holdings and Towers Watson completed a $17 billion merger deal on Jan. 4, 2016. Since then, Willis has been working on creating synergies in revenues, cost and tax savings.

“We’ve accomplished a great deal in a relatively short amount of time,” says CEO John Haley, during the conference call.

Willis has been developing integrated market offerings, taking steps to enhance its profitability margins, rolling out a business restructuring programme and delivering cost merger synergies.

In an effort to align resources and market demand, a significant restructuring effort took place in the third and fourth quarters across all lines of business in Willis' human capital & benefits (HCB) segment, according to the company’s results press release. In the fourth quarter of 2016, the HCB segment’s commissions and fees shrank 4 percent year-on-year to $751 million.

The restructuring in this segment made more than 325 colleagues globally redundant. Retirement revenues were down, impacted by a drop in actuarial consulting revenues.

The talent & rewards segment was also significantly impacted by the restructuring, according to the company.

The segment experienced the largest drop in revenues in the fourth quarter, primarily in the executive compensation and rewards, talent and communication consulting businesses, driven by fewer consulting projects and uncertainty of the regulatory and economic conditions surrounding the US election, the company said.

Driven by the acquisition of Gras Savoye, the corporate risk & broking (CRB) segment grew commissions and fees by 2 percent in the fourth quarter to $695 million compared to the same period of 2015.

However, commissions and fees in the investment, risk & reinsurance segment declined 9 percent in the fourth quarter to $260 million. The decline was driven by reinsurance in the international region and the portfolio underwriting services.

Performance was better in the exchange solutions segment, which saw commissions and fees jump 21 percent year-on-year in the fourth quarter to $174 million, driven by a 34 percent boost from retiree and access exchanges revenues.

Willis managed to overachieve its 2016 merger related cost savings guidance of $20 million, instead reaching almost $40 million in cost savings, Haley says. “We feel very confident in meeting our 2018 cost savings objectives of $100 to $125 million.”

Haley anticipates additional savings of $95 million through an operational improvement programme (OIP) in 2017, when the programme is expected to be completed.

As a result of a business restructuring programme which started in the third quarter and ended in the fourth quarter of 2016, Willis made around 450 employees redundant across all segments. The costs of the programme were calculated at approximately $50 million.

“While we still have a couple of years to complete our integration, the actions required in the first year building a new organization and culture, are the hardest and most sensitive,” says CFO Roger Millay.

Total revenues grew 5 percent to $7.9 billion in 2016 compared to the pro forma revenues in 2015. Commissions and fees were up in 2016 at $7.75 billion compared to $7.34 billion in the previous year.

However, Willis’ attributable net income halved in the full year of 2016 to $312 million for 2016, down from $640 million in the previous year.

“2016 was a year of building a new organization, a new way to address our clients’ needs and developing strong focus on financial management,” Millay says. “I expect to see our financial performance momentum grow in 2017,” he adds.

Haley chimed in: “The impact and the benefits from the revenue synergies and cost programmes will grow in 2017.”

For 2017, the company is expecting constant currency revenue growth of up to 3 percent and it will continue to drive its cost improvement programmes. “We expect to generate approximately $30 million in merger cost synergies in 2017 and incur approximately $180 million of expense for integration related items,” Millay says.

While Willis reorganises post merger, Aon is looking for acquisition targets after receiving substantial cash from a business sale.

Aon has signed a definitive agreement to sell its benefits administration and HR business process outsourcing (BPO) platform for a cash consideration of $4.3 billion to Blackstone, a private equity and alternative asset management corporation.

Depending on future performance, an additional consideration of up to $500 million may be included after the deal closes, the company said in a statement reporting its 2016 results.

The total after-tax cash proceeds are expected to be approximately $3 billion.

“Going forward, we would expect that we would deploy the proceeds and our free cash flow growth in a mix of M&A and share repurchase,” says Christa Davies, chief financial officer, during a 2016 results presentation.


WillisTowers Watson, Aon, US, North America, Results, Broker, M&A

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