Arthur J Gallagher & Co. (AJG) has been on an uptrend reflecting investors' enthusiasm about its impressive inorganic growth path. Shares gained almost 3.5% in the one-year period and closed at $47.08 per share as on Dec 31, 2014.
Arthur J. Gallagher undertakes acquisitions to augment its product and service offerings as well as expand its international exposure. Besides widening the company’s geographical footprint, these buyouts also support an enhanced portfolio of services, consolidate its position in retail and wholesale insurance brokerage services, risk management industries and improve its employee benefits services. The company’s international operations primarily include Australia, Bermuda, Canada, the Caribbean, Singapore, New Zealand and the U.K., which generated 32% of the revenues in the third quarter 2014.
During the third quarter of 2014, the brokerage segment made 19 acquisitions with annualized revenues totaling $178.7 million. Acquisitions of Massachusetts-based Affinity Marketing Group, Rockville, MD-based Independent Benefit Services, Inc. (iBEN), New Jersey-based O'Gorman & Young, Inc. along with its affiliate G. R. Murray Insurance and Australia-based Blue Holdings Pty Ltd were its latest endeavors. The company also made its biggest transaction with the acquisition of Australia-based Wesfarmers Insurance Brokerage operations. Through the first three quarter, the brokerage segment generated net earnings per share of $1.68 on revenues of $3.7 billion. While the bottom line improved 1.2%, the top line grew 30% year over year. We expect the momentum to continue on the back of similar strategic additions.
Arthur J. Gallagher's buyout spree in 2014 led to an annual tally of 48 acquisitions. In the first nine months of 2014, the insurance broker completed 45 acquisitions compared with 17 a year ago. These acquisitions generated annualized revenues of $693.6 million against $176.4 million generated from takeovers the previous year. The company’s solid liquidity position cushions its growth initiatives.
Arthur J. Gallagher’s compelling inorganic growth and strategic focus to expand globally may prompt analysts to raise their estimates, resulting in a potential rank upgrade. Currently, the insurance broker carries a Zacks Rank #3 (Hold).
In the same vein as Arthur J. Gallagher, insurance brokers are now increasingly pursuing the inorganic growth route to boost their prospects. Recently, Marsh & McLennan Companies’ (MMC), wholly owned subsidiary – Mercer – acquired Denarius, a leading compensation and benefits survey and information products consulting firm. Moreover, Willis Ireland, part of Willis Group Holdings plc (WSH), completed the acquisition of a wide range of Irish pension and financial advisory businesses from IFG Group plc and Validus Holdings, Ltd. (VR) acquired Western World Insurance Group, Inc.
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