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Arthur J. Gallagher (AJG) Expands Into Melbourne With Buyout

·3-min read

Arthur J. Gallagher & Co. AJG recently acquired Sound Insurance Services. The terms of the transaction have been kept under wraps.

Victoria-based Sound Insurance was founded in 2011. The company is a 100% Canadian family-owned brokerage and has been providing insurance products and services for business and personal insurance since the 1940s. Sound Insurance is a retail property and casualty broker. The company caters to small and mid-market corporate clients across the Melbourne Central Business District and Victoria.

This recent transaction is a strategic fit for Arthur J. Gallagher as it will reinforce the acquirer’s capabilities in the areas of Melbourne, particularly in the small corporate and mid-market segment.

Inorganic Growth Story

Arthur J. Gallagher boasts an impressive inorganic story. This marks the 11th buyout so far this quarter. It made five brokerage mergers during the third quarter, with estimated annualized revenues acquired of $16 million. Arthur J. Gallagher’s merger and acquisition pipeline is quite strong with about $400 million revenues associated with nearly 50 term sheets either agreed upon or being prepared.

Arthur J. Gallagher’s revenues are geographically diversified with strong domestic and international operations and a compelling product and service portfolio. Revenue growth rates have generally been 5-15% for 2021 acquisitions to date.

A solid capital position supports Arthur J. Gallagher in its growth initiatives. This Zacks Rank #3 (Hold) insurance broker estimates more than $2.5 billion for mergers and acquisitions consisting of $1 billion in cash, about $650 million of net cash generation in the second half of 2021, and $600 million to $700 million of borrowing capacity.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arthur J. Gallagher remains focused on long-term growth strategies for delivering organic revenue improvement and pursuing strategic mergers and acquisitions. Its focus on productivity improvements and quality enhancements should help AJG post sturdy numbers in the future.

Other Acquisitions in the Same Space

Given the insurance industry’s adequate capital level, players like Marsh & McLennan Companies MMC and Athene Holdings ATH are pursuing strategic mergers and acquisitions.

Marsh & McLennan’s unit Marsh McLennan Agency has acquired InSource Insurance Group LLC to boost its growing organization. Marsh & McLennan has made numerous purchases within its different operating units that enabled it to enter new geographies, expand within the existing locations, foray into new businesses, develop new segments and specialize within its current businesses.

Athene Holdings and Apollo Global Management APO have agreed to buy a majority interest in Aqua Finance for $1 billion from Blackstone Tactical Opportunities to boost Apollo’s $80 billion annual run-rate of asset origination across commercial and consumer lending platforms. Athene boasts an impressive inorganic growth, which has been driven by several buyouts and block reinsurance transactions with several companies. This insurer expects that its inorganic growth channel will continue to be an important driver in the future.

Price Performance

Shares of Arthur J. Gallagher have gained 40.2% in a year, outperforming the industry’s increase of 24%. Efforts to ramp up the company’s growth profile and capital position should help the stock retain the price momentum.

Zacks Investment Research
Zacks Investment Research

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Shares of Marsh & McLennan and Athene have gained 40.5% and 77.3%, respectively, in the same time frame.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report

Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report

Apollo Global Management, Inc. (APO) : Free Stock Analysis Report

Athene Holding Ltd. (ATH) : Free Stock Analysis Report

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