Arthur J. Gallagher & Co.
) entered into an agreement to acquire London based Giles Group
of Companies ("Giles"). The transaction is expected to see light
in October this year pending regulatory approval.
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The all cash transaction will cost Arthur J. Gallagher & Co.
£233 million or $366.4 million (£237 or $368.6 million in net
cash less the value of tax and other assets acquired).
Funding the Acquisition
Arthur J. Gallagher & Co. intends to finance the deal by
deploying its free cash as well as borrowings on its line of
The insurance broker expects to issue long-term notes and utilize
the proceedings to repay the line of credit over the following
Rationale Behind the Acquisition
The acquisition of Giles, the independent retail broker in the
U.K. will inflate Arthur J. Gallagher & Co.'s client base in
the middle-market and enhance its underwriting footprint via
current underwriting business and increased retail distribution
opportunities through broker networks.
The consolidated operations will also result in longer-term
operational efficiencies. The acquisition will expand its
footprint in England and Scotland and make a foray into Northern
Ireland, Wales, Isle of Man and the Channel Islands.
The acquisition is estimated to generate over £90 million revenue
annually across the five operating units - Retail, Rossborough,
Underwriting, Wholesale and Personal Lines. Additionally, it is
also expected to deliver earnings before interest, tax,
depreciation and amortization exceeding £30 million in 2014 and
exceeding £35 million in 2015. This number excludes integration
costs, which are expected to range between £1.5 million to £2.5
million per quarter through early 2015.
Following the acquisition, the consolidated operation will have
nearly 70 offices and 3,100 staff in the U.K. Brendan McManus,
CEO of Giles, will join the AJG International Executive Committee
led by David Ross, CEO of Arthur J. Gallagher International.
: Giles' retail commercial clients and networks is projected to
generate more than £57 million in revenues in 40 offices annually
besides leveraging Arthur J. Gallagher & Co.'s presence in
the U.K. The transaction also involves Westinsure and Compass
Broker Services, two UK broker networks, with a combined
membership of over 200 network brokers.
: The acquisition includes Rossborough group of companies,
generating £13 million in revenues annually.
: Revenue from this unit of Giles is estimated to generate more
than £10 million in revenues annually. This unit will merge with
the company's underwriting teams to leverage its distribution
platform and strengthen the product portfolio.
: Giles' wholesale business includes a Lloyd's broker and a
reinsurance business. Revenue generation is expected to be more
than £5 million annually. The acquisition will aid the wholesale
business come up with opportunities to distribute products via
company's underwriting and distribution platforms and thereby
boost offerings to the independent brokers.
: This unit of Giles, offering motor, home and personal marine
insurance, is projected to produce more than £5 million in
Inorganic Growth Story
Arthur J. Gallagher & Co.'s inorganic growth story looks
impressive with the ongoing acquisitions. The acquisition
of Ottawa, Ontario based Dickinson & Associates, Inc. for an
undisclosed amount at the end of last month will help the company
capitalize on its solid Canadian presence and solid industry
relationships, thereby strengthening Gallagher's employee
benefits brokerage and consulting operations, while the
acquisition of Short Hills, New Jersey based Bollinger, Inc. mid
August will help to widen its Northeastern operating platform and
market presence in three of its core businesses.
Additionally, in the last reported quarter, the company closed
five acquisitions with annualized revenues totaling $35.9
million. The company's strong financial position continues to
support the acquisitions.
Market Reacting Positively
Share price of this insurance broker have been on a rising trend.
Shares gained nearly 3% over the last 10 days. The company
announced two acquisitions in the span.
Other Insurance brokers adopting inorganic growth
Earlier, in July, insurance broker
Brown & Brown Inc
) announced the closure of acquisition by merger of Beecher
Carlson Holdings, Inc. Yet Marsh, a subsidiary of
Marsh & McLennan Companies, Inc.
) closed the acquisition of Rehder y Asociados Group, the leading
insurance adviser in Peru in June.
Arthur J. Gallagher & Co. presently carries a Zacks Rank #3
(Hold). Over the last 30 days, there was no significant earnings
momentum. With optimism over the current acquisitions, we expect
upward revisions to the estimates to exert upward directional
pressure on the Zacks Rank. In the insurance space,
Everest Re Group Ltd
) with Zacks Rank #1 (Strong Buy) is worth considering.