Arthur J. Gallagher Boosts Inorganic Growth With Buyout

Arthur J. Gallagher & Co. (NYSE:AJG) has purchased McGregor & Associates to strengthen its risk management potential in the southern region of California. This move in turn will likely fortify the company’s already robust inorganic growth portfolio. However, financial details of the transaction have been kept under wraps.

Details of the Transaction

Established in 1993, McGregor & Associates operates as a health benefits administrator and offers services to both private and public sector clients across the Californian state. Over a considerable period of time, the acquired company has built a name for itself, cashing in on its laudable public entity expertise. The company has a diverse clientele including educational institutions, public agencies, construction organizations as well as retiree medical trusts. Post completion of the buyout, the company will continue to operate from its current office location.

The team at McGregor & Associates displays prowess in health benefits administration plus boasts a stellar client service delivery as well as a brilliant reputation in the public entity marketplace. These in turn, are anticipated to further solidify and extend Arthur J. Gallagher’s capabilities in the public entity space.

Arthur J. Gallagher’s prudent M&A activity bears 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.

Banking on such strategic endeavors, Arthur J. Gallagher’s top line has been improving over a significant period of time, registering a five-year CAGR (2012-2017) at 19.6%.

Therefore, the company’s impressive growth has been mainly fueled by rising revenues as well as judicious buyouts and mergers. It has put the steam behind its acquisition activity in the retail employee benefits brokerage and wholesale brokerage areas. Arthur J. Gallagher’s merger and acquisition pipeline remains strong with about $300 million of revenues.

Zacks Rank and Share Price Movement

The company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The insurance broker's shares have gained 8.6% year to date, outperforming the industry’s rise of 4%. We expect top-line increase, astute acquisitions and a sturdy capital position to drive the stock in the near term. Notably, the company’s long-term earnings growth is pegged at 11.7%, better than the industry’s 11.1%.

Other Acquisitions in the Insurance Space

Following are a few noteworthy consolidations that need special mention, one being the decision taken by AXA Group on Mar 5, 2018 to acquire 100% of XL Group Ltd (NYSE:XL) for $15.3 billion and creating the leading global property and casualty (P&C) Commercial lines insurer based on gross written premiums.

Another such buyout refers to Fidelity National Financial, Inc.’s agreement (NYSE:FNF) to integrate Stewart Information Services Corporation (NYSE:STC) into its portfolio for $1.2 billion via a cash-stock deal on Mar 19, 2018. The transaction is expected to culminate in the first or second quarter of 2019, subject to closing conditions.

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