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Arthur J. Gallagher (AJG) Boosts UK Presence With Buyout

Zacks Equity Research

Arthur J. Gallagher & Co. AJG has recently entered into a definitive agreement wherein it will acquire 100% of specialist UK insurance broker Stackhouse Poland Group Limited. The transaction will enable the acquirer to boost its service portfolio while continuing to bolster client service. The buyout is expected to be completed within the first quarter of 2019 on fulfilling certain regulatory conditions. Financial details of the transaction have been kept under wraps.

Established in 1974, Stackhouse Poland operated as a local community broker and has been growing organically ever since. Prudent acquisitions have also helped the company flourish into a successful, large-scale specialist UK insurance broker with annualized revenues of $70.2 million (£55 million). Stackhouse Poland’s operations span across 23 offices across the United Kingdom and have well-established insurance divisions focusing on high-net-worth private clients, real estate, commercial, healthcare and a wide array of specialist insurance sectors.

Both Arthur J. Gallagher and Stackhouse Poland have evolved into well-respected insurance brokers through a combination of organic growth and prudent buyouts. The transaction poses an amazing opportunity for this Zacks Rank #4 (Sell) insurance broker to bring together two of its high-performing businesses.

Given the long-standing reputation built by Stackhouse Poland over a considerable period of time with an excellent suite of specialisms, the buyout is projected to be a brilliant addition to Arthur J. Gallagher’s global team. Stackhouse Poland’s specialism portfolio is complementary to the acquirer, comprising private clients, real estate, marine, churches and education.

From the standpoint of Stackhouse Poland, the buyout will enable the company to reach great heights through exemplary client service and development of top-notch insurance professionals. With a similar culture, Arthur J. Gallagher is also anticipated to reap benefits from this consolidation.

This acquisition is another effort on Arthur J. Gallagher’s part to expand outside the United States. In fact, in December 2018, the company made acquisitions in countries like New Zealand, Australia and even in Asia, thereby strengthening its geographical footprint.

Arthur J. Gallagher has been focused on strengthening its presence in the United Kingdom and apart from the acquisition under discussion here, the insurance broker bought Pavey Group last month. United Kingdom-based Pavey Group is a retail insurance broker and the transaction will aid Arthur J. Gallagher to fortify its footprint in South West England. Pavey Group will operate as part of the acquirer’s UK Retail Division.

Arthur J. Gallagher derives about one-third of its revenues from international operations. Notably, all its acquisitions in the month so far have been outside the United States. Given the number and size of the non-U.S. acquisitions, the insurance broker hopes to witness a rise in international contribution to total revenues.

Given the insurance industry’s all-time high capital level, insurers are aggressively pursuing mergers and acquisitions to ramp up growth, expand footprint, enhance capabilities and diversify operations. Moreover, its inorganic pipeline remains robust with about $500 million of revenues. The company flaunts an impressive growth profile, driven by organic sales plus a slew of merger and acquisition (M&A) activities. The company remains upbeat about its ability to tow in integration partners within its typical small tuck-in size at justifiable prices.

Shares of the company have rallied 13.3% in a year’s time, outperforming its industry’s rise of 2.7%. We expect top-line growth, smart acquisitions and a healthy capital position to push the shares up in the near term.

Other Insurers Following Suit

Considering the insurance industry’s all-time high available capital, there has been a host of significant acquisitions in the space of late.

Recently, Horace Mann Educators Corporation HMN closed the buyout of retirement plan provider Benefit Consultants Group and the subsidiary broker dealer and registered investment adviser BCG Securities. The acquisition will help the Multi line insurer improve its retirement plan offerings for educators and others, providing services to their communities. Further, Brown & Brown, Inc.’s BRO arm Brown & Brown, Kentucky, Inc. bought all the assets of Dealer Associates, Inc in December 2018, enabling the insurance broker to grow its Dealer Services team while fortifying its foothold in the Southwest region of the United States.

Last November, Marsh & McLennan Companies, Inc.'s MMC subsidiary Mercer took over Summit Strategies Group.

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

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