The proposed merger of Towers, Perrin, Forster & Crosby Inc. and Watson Wyatt Worldwide Inc. may change the structure of the executive compensation consulting business. The two human resources consultancies are players in a sector that's come under enough public scrutiny to be a potential headache for the combined Towers Watson & Co. Skepticism of the practice has led the compensation committees of many boards to hire consultants that do no other work for the company.
That's good for boutiques such as Pearl Meyers & Partners and Frederick W. Cook & Co. but troubling for larger players such as Towers Perrin, Watson Wyatt and Mercer LLC that derive most of their revenue from other sources, since winning an executive compensation mandate can come at the expense of advising on human resources issues like healthcare benefits. At Watson Wyatt, for example, executive compensation accounted for 12% of revenue in 2006, 2007 and 2008, while the firm's benefits group generated 60% of revenue in the same time.
Many exec comp consultants have started their own small shops in response. The possibility that Towers Watson could lose much of its talent in their area may push the combined firm to spin out its executive comp unit, two lawyers in the area hypothesized.
That would probably be good news for at least one set of advisers on the deal. Arlington, Va.-based Watson is using Stephen Glover at Gibson, Dunn & Crutcher LLP for legal advice and Ed Fitzgerald and Stefan Selig at Bank of America Merrill Lynch for financial advice. Gibson has done securities and corporate governance work for Watson Wyatt since it went public in 2000 and advised the company on its $458 million purchase of Watson Wyatt LLP, its U.K. unit, in 2005.
For legal advice, Towers Perrin tapped a team led by Charles J. Conroy of Milbank, Tweed, Hadley & McCloy LLP, while Michael Carr and Stellar Tucker of Goldman, Sachs & Co. provided banking advice. Conroy has been the company's outside corporate counsel for about 15 years and advised Towers Perrin when Electronic Data Systems Corp. paid it $420 million in 2005 for 85% of a business-process-outsourcing joint venture. Goldman began working with Towers in 2004 and also advised on the EDS deal.
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