High unemployment, uncertainty in the Obama-era health care industry, pension fund upheavals, executive bonus controversies -- it's either a great or a terrible time to be in the back-office consultancy business, depending on the quality of your products and sales force. Two of the largest companies in this sector, Watson Wyatt Worldwide (WW) and Towers Perrin have decided to take a new approach to these challenges: combine and conquer.
Today's announced merger will result in the world's largest employee-benefit consulting company, with 14,000 employees and gross annual sales in 2009 of $3.2 billion. The merger will provide Watson shareholders with a 50 percent stake in the new company, Towers Watson & Co. The other half will be apportioned out to Towers Perrin shareholders, who are all employees of the firm. The new company will be publicly traded.
The companies anticipate that eliminating duplication in operating expenses and facilities could save the firm $80 million a year. They do, however, anticipate changeover expenses of $80 million spread over the next three years.
The new board will be comprised of equal numbers of representatives from each firm. Management will also be shared; Watson CEO John Haley will fill the same position with Towers Watson, while Towers Perrin CEO Marck Mactas will serve as chief operating officer and president. The company will establish new headquarters in the Northeast, but not in the current home of either of the merged companies.
The companies' services overlap in a number of areas, such as human resources consulting, health care benefit program management, and pension planning. Both boast impressive client lists, as well; Towers Perrin serves three-quarters of the Fortune 1000 and the same percentage of the world's 500 largest corporations.
Both have also steadily acquired other companies, as well, to expand their access to world markets. 65 percent of Towers Perrin's revenue currently comes from U.S. companies, while Watson derives 55 percent of its income from non-U.S. sources.
In a slack economy, consultants are a tempting target for a CEO with a sharp pencil, and the increased size of the newly merged entity could provide it more flexibility to respond to the ebbs and flows of demand. It should also strengthen the company's prospects when, and if, the economy rebounds.