Arthur J. Gallagher & Co. (AJG) announced acquisitions back-to-back to date in June. The insurance broker recently took over Wesfarmers' insurance brokerage operations in Australia, New Zealand and the United Kingdom. Last week, it acquired Bridgewater, NJ-based The Plus Companies, Inc. and Tri-State General of Salisbury, MD.
While the Wesfarmers acquisition will enhance Risk Placement Services' by expanding the company’s wholesale network, the addition of Tri-State would enhance its U.S. wholesale operations.
Arthur J. Gallagher & Co. remains focused on international expansion through both acquisitions and organic measures. The company’s international operations, primarily in Australia, Bermuda, Canada, the Caribbean, Singapore, New Zealand and the U.K., generate about one-fourth of its revenues. With this flurry of acquisitions, the number is expected to grow further. Revenue growth was the primary contributor of the company’s bottom-line improvement in the last quarter. Earnings outperformed the Zacks Consensus Estimate by 52% and year-ago number by 22%.
Arthur J. Gallagher & Co.’s growth story looks impressive. In the first quarter of 2014, it made nine acquisitions with annualized revenues totaling $17.8 million. In the ongoing second quarter, the company has already announced 11 buyouts including the last three. Arthur J. Gallagher & Co. expects its clean energy investments to contribute $90.0–$100.0 million to this year’s net earnings that should in turn support its acquisition strategy. In addition, the company’s cash balance – up 2.5 times from 2013 end – and retained earnings of $596.9 million bear testimony to its financial health. With optimism surrounding the acquisitions, the estimates for this Zacks Rank #3 (Hold) insurance broker have been witnessing upward revisions. The Zacks Consensus Estimate for 2014 is currently pegged at $2.47 and the same for 2015 is $2.89. These translate to year-over-year improvement of 22.8% and 16.7% for 2014 and 2015, respectively. The expected long-term earnings growth rate is 12.8%.
As insurance brokers choose the inorganic route for growth, the takeover saga rages the space. Last week, Brown & Brown Inc. (BRO) purchased certain assets of Gaston & Associates, Inc., while Aon US Holdings, Inc. – subsidiary of AON plc (AON) – inked a definitive acquisition deal with StoneRiver Group, L.P. for StoneRiver National Flood Services, Inc. and certain related entities. But the June takeover chapter was started by Marsh & McLennan Agency LLC (MMA), a subsidiary of Marsh & McLennan (MMC), which acquired Senn Dunn Insurance – the largest independent insurance agency in North Carolina.
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