Arthur J. Gallagher Buyout to Brace Central California Base

Arthur J. Gallagher & Co. AJG recently acquired Buckman-Mitchell, Inc., which will not only improve its service portfolio but also boost its presence in Central California. However, financial details of the transaction were kept under wraps. Shares of the company inched up 0.1% in the last trading session.

Established in 1916, Buckman-Mitchell operates as a retail property/casualty and employee benefits agency and consultant, offering risk management and insurance services. The company’s main focus lies on commercial and agribusiness. On completion of the buyout, the acquired company will continue to operate from its current locations of Visalia and Fresno.

The latest integration is anticipated to be a substantial value addition to the acquirer’s already robust inorganic portfolio. Buckman-Mitchell provides its customers with a level of service, expertise and trained staff that led it to emerge as one of the largest brokers in California’s Central Valley. This in turn, will allow the company to serve its clients more efficiently and effectively, achieving its operational goals. The consolidation will enable the acquirer to enhance and extend its capabilities pertaining to its risk management and insurance service offering in Central California and also utilize Buckman-Mitchell’s strength in public entity and construction, both being lucrative for the acquirer. Therefore, the latest acquisition is expected to reinforce Arthur J. Gallagher’s solid inorganic growth profile and add capabilities to its insurance brokerage service portfolio.

With respect to strengthening its presence in California and driving its property/casualty and risk management services, Arthur J. Gallagher acquired Tyler Insurance Agency located in El Centro. This in turn, is likely to cement the insurance broker’s prevalent abilities in serving agribusinesses, public entities, electric utilities, schools and construction firms.

Arthur J. Gallagher’s discreet M&A activity bears testimony to its convincing inorganic growth strategy. In the first nine months, this Zacks Rank #3 (Hold) insurance broker successfully closed 27 acquisitions with annualized revenues of about $234 million. Moreover, its inorganic pipeline remains robust with about $500 million of revenues. It boasts an impressive growth profile, driven by organic sales plus merger and acquisition (M&A) activities. The company remains upbeat about its ability to tow in integration partners in its typical small tuck-in size at justifiable prices.

M&A activity, an inorganic growth strategy and one of the key trends in 2018, has been adding fuel to the already bullish performance of the insurance industry.

Shares of the company have rallied 21.5% year to date, outperforming its industry’s rise of 11.5%. We expect top-line growth, smart acquisitions and a healthy capital position to push the shares up in the near term.

Other Integrations in the Insurance Space

We have been noticing insurers walking the inorganic route to enrich their respective portfolio for a while now. The insurance industry is consistently witnessing a consolidation craze, attributable to its all-time high available capital resource.

Recently, Brown & Brown, Inc. BRO purchased Hays Companies to ramp up its employee benefits business.

Stocks That Warrant a Look

Two better-ranked stocks from the same space are Willis Towers Watson Public Limited Company WLTW and eHealth, Inc. EHTH, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Willis Towers operates as an advisory, broking and solutions company worldwide. The company delivered average four-quarter positive surprise of 7.13%.

eHealth provides private online health insurance exchange services to individuals, families and small businesses in the United States and China. The company pulled off average four-quarter earnings surprise of 29.03%.

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