Arthur J. Gallagher & Co. AJG has recently acquired Thomas Costello Insurance Agency, Inc. to bolster its retail property/casualty brokerage operations and employee benefits consulting services. The company also intends to reinforce its presence in Los Angeles and the San Fernando Valley with the buyout. However, financial details of the transaction were kept under wraps.
Details of the Transaction
Established in 1990, Simi Valley CA-based Thomas Costello operates as a retail property/casualty as well as an employee benefits consultant and broker, catering to clients throughout Southern California. The company, offering personal and commercial coverage, has built a reputation for itself over a significant period of time. After the completion of the buyout, the company will continue to operate from its current office location.
The latest acquisition is anticipated to strengthen the already robust inorganic growth portfolio of the acquirer. The team at Costello displays solid strength in meeting the specific needs of its clients and also boasts a proven expertise in its field as well as sturdy market relationships. Consequently, it is anticipated to be highly value accretive to Arthur J. Gallagher’s expanding operations in the Southwest region of the United States. With this buyout, the insurance broker will be able to reinforce its footprint as the largest broker in Los Angeles and San Fernando Valley area.
Arthur J. Gallagher’s prudent acquisitions bear testimony to its inorganic growth strategy. The insurance broker remains optimistic about its capability to attract acquisition partners in its typical small tuck-in size at fair prices.
Over the past few years, Arthur J. Gallagher’s impressive growth has been primarily fueled by organic sales as well as judicious buyouts and mergers. The company has been focusing on its acquisition activity in the retail employee benefits brokerage and wholesale brokerage areas. Its merger and acquisition pipeline remains strong with about $400 million of revenues. Further, driven by the number and size of non-U.S. buyouts, international contribution to total revenues is expected to improve.
Zacks Rank and Share Price Movement
Arthur J. Gallagher carries a Zacks Rank #4 (Sell). However, shares of the company have rallied 16.0% in a year’s time, outperforming the industry’s rise of 5.9%. We expect top-line growth, prudent acquisitions and a robust capital position to drive the shares higher in the near term. Notably, the company’s long-term earnings growth is pegged at 11.80%, better than the industry’s increase of 11.50%.
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Other Acquisitions in the Insurance Space
We have observed that insurers have been adopting the inorganic route to strengthen portfolio. The insurance industry is grabbing attention of late with a flurry of acquisitions on the back of its available capital resource which remains at an all-time high.
Recently, Alleghany Capital Corporation, which is a wholly-owned subsidiary of Alleghany Corporation Y, revealed that its unit Jazwares, LLC has purchased Russ Berrie and Applause brands. Also, Brown & Brown, Inc.’s BRO unit Brown & Brown of Kentucky, Inc. recently purchased almost all the assets of Automotive Development Group, LLC.
In April, White Mountains Insurance Group, Ltd. WTM inked a deal to buy a majority equity stake in NSM Insurance.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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