Arthur J Gallagher & Co.
) has inked a deal to take over an 87% stake in Noraxis Capital
Corporation from RSA Insurance Group Plc. This deal underlines the
company's efforts to strengthen its presence in Canada.
The transaction is expected to close in July, pending regulatory
approval. The remaining 13% will stay with Noraxis employees.
The transaction will cost Arthur J. Gallagher & Co. $400.3
million or C$435.5 million ($387.5 or C$421.6 million in net cash
less the value of assets acquired).
Funding the Acquisition
Arthur J. Gallagher & Co. intends to finance the deal by
deploying additional long-term borrowings and its line of credit.
Noraxis ranks among the top-five Canadian insurance brokers
providing retail commercial, personal and employee benefits
insurance products and services. This acquisition will immediately
place Arthur J. Gallagher & Co. in a premier position besides
consolidating its presence as a major player in the Canadian
employee benefits business.
Canada is the 10th largest economy and has the eighth highest per
capita income in the world. Reportedly, the Canadian commercial
insurance market will outpace Canadian GDP growth. This acquisition
will hence help it to capitalize on opportunities and improve its
Synergies of the Acquisition
Arthur J. Gallagher & Co. estimates the buyout to be accretive
to earnings per share by 7 cents in 2015 and another 3 cents by
using additional tax credits. The company also expects its share in
revenues to be $110 million and $42 million in net earnings before
interest, income taxes, depreciation, amortization and the change
in estimated acquisition earnout payables (EBITDAC).
However, it also expects integration costs of C$2 to C$3 million
per quarter through 2015.
Commercial Lines of business of Noraxis that largely focus on
middle-market clients will provide opportunities to bring Arthur J.
Gallagher & Co. full range of products and services to the
existing and potential clients of the former. This business line is
estimated to generate C$92 million of annualized revenues in 2015.
Leveraging Arthur J. Gallagher's e-commerce distribution model,
Noraxis' Personal Lines of business can enhance its operations.
This business is estimated to generate C$27 million in annualized
revenues in 2015.
Employee Benefits business of Noraxis will expand Arthur J.
Gallagher & Co. employee benefits consulting and brokerage
services in Canada. This business is estimated to generate C$19
million in annualized revenues in 2015.
Arthur J. Gallagher & Co.'s growth story looks impressive with
the recent acquisitions. In the first quarter of 2014, it made nine
acquisitions with annualized revenues totaling $17.8 million.
Moreover, the company has already announced seven buyouts in the
ongoing second quarter.
Arthur J. Gallagher & Co.'s brokerage operations in Canada
generated C$28 million in revenues in 2013. With the recent
acquisition, the top line is expected to improve.
Other insurance brokers in news for acquisitions
Marsh & McLennan Agency LLC (MMA), a subsidiary of
Marsh & McLennan Companies, Inc.
), has acquired Friendswood, TX based VISICOR, a full-service
employee benefits brokerage and consulting for an undisclosed
Brown & Brown, Inc
) recently acquired the operating assets of Pacific Resources
Benefits Advisors, LLC.
Zacks Rank and Other Picks
Arthur J. Gallagher & Co. carries a Zacks Rank #3 (Hold). A
better-ranked insurance broker,
) can be considered for investment. The stock carries a Zacks Rank
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