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June 30, 2015
martinwolf  Transaction Analysis

Willis Group to Acquire Towers Watson in Merger of Equals


Financial Information
  • Transaction Size                                       $8.6B
  • Enterprise Value                                       $7.8B
  • EV/LTM Revenue                                         2.1x 
  • EV/LTM EBITDA                                         10.9x 
Transaction Facts
  • Willis Group Holdings (NYSE:WSH), an insurance broker and risk management advisory firm, announced today that signed a definitive merger agreement to acquire human resources consulting firm Towers Watson & Co. (Nasdaq:TW) in an all-stock merger.
  • The new company, Willis Towers Watson, will have 39,000 employees in more than 120 countries, a total revenue of about $8.2B and an equity value of about $18 billion.
  • Willis Group shareholders will own 50.1% of the combined group and Towers Watson shareholders will own the rest. 

Not the Usual Numbers

  • Typically, buyers pay a premium over the sellers' share price. However, in this case, Towers Watson shareholders are receiving the equivalent of $125.13 a share as of Monday's close (compared with its Monday closing price of $137.98). This resulted in the company's share price dropping more than 8 percent. Towers Watson Chief Executive John Haley attributed this to an exchange ratio set in May that used a 60-day moving stock-price average showing the companies as more equal in terms of market cap. This could create an obstacle for the deal.
Cost Savings in Tightening Space 
  • Margins are Key:  In an increasingly competitive services space, increasing margins is critical to success. This deal achieves tax savings: the merged company will be domiciled in Ireland, cutting taxes from Towers Watson's current rate of 32% to an expected "mid-20% range." In addition, the companies expect cost synergies of $100 - 125 million.
  • Achieving Scale When Growth Is Slow: In a market with declining organic growth, acquisitions can be key for achieving scale. Following this merger, the combined company will advise over 80% of the world's top-1000 companies, with Towers Watson using Willis' key mid-market relationships to expand business to more than 80 countries, and Willis benefiting from Towers Watson's relations to penetrate into the US property/casualty insurance corporate market.

For more information about this transaction, click here to read the press release.


martinwolf was  not the advisor in this transaction.

 

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With offices in the San Francisco Bay Area and Bangalore, India, martinwolf is a leading middle market M&A Advisory focused on companies in the IT Services, IT Supply Chain, IT-Enabled Business Process Outsourcing and Software as a Service (SaaS) space. Since 1997, our team has completed more than 135 transactions in nineteen countries and sold seven divisions of Fortune 500 companies. 

 

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