American Financial (AFG) Closes Crop Risk Services Buyout
American Financial Group, Inc. AFG and American International Group AIG have officially announced the completion of a crucial buyout agreement. American Financial has acquired Crop Risk Services ("CRS"), a primary crop insurance general agent based in Decatur, IL, for a cash consideration of $240 million. AFG used cash on hand to fund the acquisition.
CRS is known as the seventh largest provider of multi-peril crop insurance in the United States, with impressive 2022 gross written premiums of approximately $1.2 billion.
A Win-Win Deal for AFG & CRS
This strategic acquisition marks a significant milestone for Great American Insurance Group, one of the subsidiaries of American Financial. The inclusion of CRS into the fold will reinforce Great American's position as the fifth largest provider of multi-peril crop insurance in the United States. Moreover, it will solidify its standing as the largest U.S.-owned participant in the multi-peril crop insurance program.
Great American Insurance Group has been a key player in the crop insurance market since 1915, providing crop-hail coverage. They expanded their offerings by writing multi-peril crop insurance in 1980, following Congress's authorization of the program. In 2022, Great American's Crop Division generated impressive gross written premiums of approximately $1.8 billion, further cementing its position as a major player in the multi-peril crop insurance segment.
As part of AFG, Crop Risk Services will continue its operations in all 37 states it currently serves, promising a seamless transition for its existing clientele and opening up new avenues for growth under American Financial Group's umbrella.
Capitalizing on Strategic Synergies
Carl H. Lindner III, co-chief executive officer of AFG, expressed enthusiasm about the deal, citing the exceptional strategic fit between CRS and their existing crop insurance operations. With this acquisition, Great American will gain access to economies of scale, enabling the group to maximize its benefits and broaden its competitive edge in the crop insurance market.
Furthermore, AFG's ability to efficiently execute such transactions and allocate excess capital into core businesses highlights its success in identifying niche businesses that meet the targeted return thresholds. Following the acquisition, American Financial Group expects to have substantial excess capital available, opening doors for potential share repurchases or special dividends.
Crop Risk Services and AIG's Journey
AIG originally acquired Crop Risk Services as part of its purchase of Validus Holdings, Ltd. Since then, CRS has demonstrated impressive growth, thanks to the leadership of a skilled and experienced management team. AIG's chairman and chief executive officer, Peter Zaffino, expressed confidence in AFG as an ideal partner for CRS. Zaffino believes that the scale provided by the acquisition will further enhance the business prospects of CRS.
A Legacy of Strategic Acquisitions
American Financial Group has a track record of reaping the rewards of strategic acquisitions. It is actively involved in startups, small-to-medium-sized acquisitions and product launches. It is prudently investing in businesses.
In January 2022, American Financial acquired Verikai, Inc. for $120 million in cash. With this acquisition, Great American Insurance Group, gained a predictive risk tool and unique Marketplace solution from Verikai as it enters the medical stop-loss business. AFG intends to focus on small and underserved risks.
Zacks Rank and Price Performance
AFG currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of AFG have lost 13% year to date against the industry’s 6% increase.
Image Source: Zacks Investment Research
Other Acquisitions in the Same Space
Given the insurance industry’s adequate capital level, players like Brown & Brown, Inc. BRO are pursuing strategic mergers and acquisitions. Recently, this insurance broker inked a deal to buy Kentro Capital Limited. The acquisition, when it materializes, will boost Brown & Brown’s presence in parts of England.
Brown & Brown and its subsidiaries continuously make strategic acquisitions to expand globally, add capabilities and boost operations. Also, these strategic buyouts help Brown & Brown increase commissions and fees, which, in turn, drive revenues. Brown & Brown’s impressive growth is driven by organic and inorganic means across all segments. Consistent operational results have been aiding Brown & Brown in generating solid cash flows for deployment in strategic initiatives
Arthur J. Gallagher & Co. AJG recently acquired Insurance by Ken Brown. The buyout will help AJG consolidate its presence in parts of the United States. Arthur J. Gallagher has an impressive inorganic story with a number of buyouts in the Brokerage and Risk Management segments. This insurance broker made 10 acquisitions in the first quarter of 2023 that contributed about $69 million to estimated annualized revenues.
AJG has a strong merger and acquisition pipeline with about $300 million of revenues, associated with about 40 term sheets either agreed upon or being prepared. Revenue growth rates generally range from 5% to 20% for 2023 acquisitions. A solid capital position supports AJG in its growth initiatives and it thus remains focused on continuing its tuck-in mergers and acquisitions. The company expects an M&A capacity of more than $3 billion through the end of 2023.
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
American International Group, Inc. (AIG) : Free Stock Analysis Report
Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report
American Financial Group, Inc. (AFG) : Free Stock Analysis Report
Brown & Brown, Inc. (BRO) : Free Stock Analysis Report
