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AJG on an Acquisition Spree

Zacks Equity Research

Arthur J. Gallagher & Co. (AJG) recently acquired Cherry Hill, New Jersey-based McIntyre Risk Management, LLC for an undisclosed amount.

With this acquisition, Arthur J. Gallagher & Co.’s takeover tally for the fourth quarter reaches an impressive nine. Shares of Arthur J. Gallagher & Co. gained almost 4.9% to $46.511 since the onset of fourth-quarter 2013, reflecting investors’ enthusiasm about its impressive inorganic growth story so far.

Founded in 2002, McIntyre Risk Management is a retail insurance broker. It provides risk management and retail commercial property and casualty insurance products and services to its upper middle market U.S. clients as well as to international clients. Additionally, they offer insurances support services that include contract reviews, risk control strategies, claims management, modification modeling and loss control.

The acquisition is expected to enrich Arthur J. Gallagher’s wide range of insurance products and services besides strengthening its client base in New Jersey. Especially, McIntyre’s strong experience in commercial lines coverage will be great complements to Arthur J. Gallagher & Co.’s Northeast operation.

Post the acquisition, employees of McIntyre Risk Management LLC will continue to work in their current location, led by Douglas Brown, the north-east region head of retail property and casualty brokerage operations of Arthur J. Gallagher & Co.

Arthur J. Gallagher’s inorganic growth profile is fueled by its continuous acquisition activities. Quarter-to-date tally already exceeds the third quarter takeover count and compares favorably with that of the second quarter. Annualized revenues from eight acquisitions in the third quarter were $135.5 million, comparing favorably with $35.9 million in annualized revenues from five acquisitions in the second quarter.

Arthur J. Gallagher & Co.’s strong financial position continues to support its robust acquisition strategy.

The Zacks Consensus Estimate 2014 is currently pegged $2.52. We expect the current acquisition along with the previous ones and the solid execution to add to the solid inorganic growth trajectory. We hence expect it to exert upward directional pressure on Zacks Rank.  . Arthur J. Gallagher & Co. presently carries a Zacks Rank #3 (Hold).

Others adopting the inorganic growth route in the insurance space are Brown & Brown Inc.’s (BRO) subsidiary, Brown & Brown of Kentucky Inc., which acquired certain assets of O'Neil Financial Services, Agency Services Consolidated and Preserve Extended Protection Plan.

Mercer, the consulting wing of Marsh & McLennan Companies Inc. (MMC), announced its intention to purchase the pension wind-up operations of PricewaterhouseCoopers (PwC) in Canada in August.

A better-ranked insurance broker AON plc (AON), with a Zacks Rank #2 (Buy), is worth considering.

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