Willis Towers Watson’s $1.3 billion cash-and-stock deal to acquire private equity-owned brokerage Newfront will expand its middle-market business and specialty focus, adding “cutting-edge” technology and agentic AI capabilities, its top executive says.

The deal also reflects several industry trends, including large brokers’ desire to acquire more middle-market business and boost their revenue as organic growth rates decline, analysts say.

In addition, it comes amid growing consolidation among brokers, which is expected to accelerate.

The deal, announced Wednesday, will add about $235 million in revenue to WTW and over 650 employees, including more than 120 producers.

WTW, the world’s fourth-largest brokerage, with $5.06 billion in revenue in 2024, has about 49,000 employees worldwide.

San Francisco-based Newfront, co-founded in 2017 by CEO Spike Lipkin, is the 37th-largest brokerage of U.S. business, with $235.2 million in 2024 U.S. brokerage revenue, according to the most recent Business Insurance rankings. Newfront, which began as an insurtech brokerage, expanded its traditional brokerage business with its 2021 merger with ABD Insurance and Financial Services.

The transaction is expected to close in the first quarter.

The deal should boost WTW’s overall organic revenue growth, its top executives said during a call with analysts on Wednesday.

“This acquisition shifts our portfolio mix further toward broking and increases our exposure to high growth specialties in the U.S. middle market,” such as technology, fintech and life sciences, CEO Carl Hess said.

The purchase of Newfront will grow WTW’s market share in the U.S. middle market and increase revenue at a time when organic growth rates are slowing due to falling insurance prices in some lines and rate deceleration in others, said J. Paul Newsome Jr., managing director with Piper Sandler & Co. in Minneapolis.

“It’s a fairly large bolt-on to their middle market business, and it does seem to be growing a bit more quickly, so it adds a little organic growth as well,” he said.

Newfront will also add to WTW’s West Coast and specialty business, said Phil Trem, president of Woodmere, Ohio-based mergers and acquisitions consultancy MarshBerry.

“They are middle market retail brokers, but they are very specialty-based with the different industries that they bring,” he said.

In addition to growing WTW’s revenue base, which will give it more market influence, Newfront’s advanced technology will help the combined brokerage and the specialty nature of much of its business will help increase WTW’s profit margin, said Meyer Shields, Baltimore-based managing director at Keefe, Bruyette & Woods.

“That has been a critical strategic element since Carl Hess took over in terms of focusing very much on specialization as a means of expanding margins,” he said.

Newfront’s two business segments, business insurance and total rewards, will be combined with WTW’s risk & broking and health, wealth & career segments, respectively.

The planned combination of Newfront’s technology with WTW’s digital trading platform, will expedite WTW’s technology development, Mr. Hess said.

“This combination will simplify the broker and client experience, improve sales productivity, enable us to expand more quickly in the middle market, unlocking cross-selling opportunities and bolster our technology talent base,” Mr. Hess said.

Under the deal WTW will pay $1.05 billion upfront, comprised of approximately $900 million in cash and $150 million in equity to be paid to Newfront employee-shareholders. A contingent consideration of up to $250 million is payable primarily in equity, subject to Newfront achieving specified three-year performance targets.

An additional $150 million, payable primarily in equity, would become due if Newfront achieves above-target revenue growth after the third anniversary of the deal closing.

WTW will also provide equity-based retention incentives totaling $100 million for Newfront employees through 2031.

WTW expects to achieve run-rate cost synergies of around $35 million by the end of 2028, primarily driven by technology efficiencies and overhead reductions across the combined business. The brokerage also anticipates transaction expenses of $25 million and cash integration costs of about $100 million, which include technology integration, system alignment, and employee-related costs, along with approximately $30 million of one-time non-cash expenses.

The deal marks a return to major acquisition activity for WTW and is the latest in a series of broker acquisitions, including Baldwin Group’s recently announced plan to acquire CAC Group in a $1.03 billion deal, Brown & Brown’s acquisition of Accession Risk Management and Arthur J. Gallagher & Co.’s purchase of AssuredPartners. After a proposed merger with Aon fell through in 2021, WTW had paused major acquisitions.

Brokerage M&As are expected to pick up next year as interest rates gradually decrease and several private-equity investors look to sell their investments, which they typically hold for about five years, Mr. Trem said. Additionally, slowing organic growth and new private equity investors entering the market will likely lead to more consolidation, he added.

“We think the market is going to remain incredibly dynamic in ’26 – very, very active – and the level of demand continuing to rise,” he said.

Rolling up smaller brokers into larger brokers can also make the acquired business more profitable because of the benefits of scale, which encourages M&A, said Piper Sandler’s Mr. Newsome.