Analysts endorse Willis-Towers Watson merger
The merger of broker Willis and professional services company Towers Watson makes strategic sense according to Keefe, Bruyette & Woods (KBW).
“We generally view broker M&A as positive, and while there’s always execution risk (as in any deal), we think the strategic rationale makes sense for several reasons,” said the analysts.
Meyer Shields, managing director at KBW, explained that the combination of Willis and Towers Watson roughly replicates the successful corporate structures seen at both Aon and Marsh & McLennan.
“Haley’s considerable experience with other mergers (including the Towers-Watson Wyatt transaction that probably included significantly more business line and client overlap) reinforces our confidence in his ability to execute successfully,” he said.
The analyst also sees merit in the companies complementary customer profiles and the increased revenue diversification adds value for Willis shareholders as the insurance and reinsurance markets continue to soften.
“That diversification is augmented by Towers Watson's health insurance exchanges’ rapid growth and investor appeal (although we’re a little concerned about the exchanges’ long-term margin outlook),” said KBW.
However, it added that in the very short-term it believes Willis’ competitors will utilise any integration-related distraction to pursue producers and/or clients. But KBW is confident that the two companies’ limited business mitigates that concern.
“Longer term, we think that Willis’ ability to bring Towers’ health insurance exchange solutions to middle-market client will increase competitive pressures on smaller benefits brokers and consultants, and will drive many of them to pursue affiliations with larger players that have more extensive resources,” said KBW.
