Gallagher to non-disruptively absorb WTW assets, says S&P

S&P Global Ratings believes Gallagher will successfully and non-disruptively absorb the various businesses it’s set to purchase from Willis Towers Watson, prior to the latter’s much-anticipated mega merger with fellow broking powerhouse Aon.

The various subsidiaries, being sold to satisfy European Commission competition concerns, include Willis Re, UK specialty, as well as mainland Europe and North American retail operations.

S&P continues to expect Gallagher to pursue ongoing tuck-in deals as part of its growth strategy, while deal financing is expected to consist of new debt and equity along with balance sheet cash, resulting in no underlying change to prospective credit metrics through the rating outlook horizon

Consequently, S&P has revised its outlook on Gallagher to positive, and at the same time has assigned a ‘BBB’ issue-level ratings to its proposed senior debt issuance.

Fitch Ratings meanwhile has affirmed Gallagher’s Long-Term Issuer Default Rating (IDR) at ‘BBB’, with a stable rating outlook.

The ratings reportedly impact around $5.7 billion of debt, including the company’s $1.2 billion revolving credit facility.

In addition, Fitch has assigned a ‘BBB’ rating to Gallagher’s new senior unsecured notes, and views the announced acquisition of WTW’s assets as neutral to its rating.

Fitch expects the deal to be financed via a combination of debt, equity and cash, with the projected pro forma leverage profile by YE 2021 to be relatively similar to YE 2020.

Furthermore, Gallagher is expected to remain acquisitive in the coming years and rely upon a combination of debt, equity and strong internal CF generation to finance future deals.

Moody’s Investors Service has affirmed Gallagher’s Baa2 long-term issuer rating and has also assigned a provisional (P)Baa2 senior unsecured rating to Gallagher’s multi-purpose shelf registration. The rating outlook for these remains stable.

Moody’s argues that this deal will expand Gallagher’s market presence, particularly in international reinsurance and retail brokerage, boosting its consolidated revenue by nearly 20%.

It is also expected to enhance the broker’s capabilities in such specialties as energy, construction, cyber and aerospace, and will expand its data and analytics and related advisory skills.

However, Moody’s does note that factors offsetting these benefits include pending increase in debt to help fund the transaction and the acquisition integration risk, including potential attrition among producers and clients.

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