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Arthur J. Gallagher's Buyout to Solidify California Foothold

Zacks Equity Research

Arthur J. Gallagher & Co. AJG recently acquired Wheatman Insurance Services LLC, which will enable the acquirer not only to expand but also improve its employee benefit consulting and brokerage services across the Southwest region of the United States. However, financial details of the transaction were kept under wraps.

Delving Deeper Into the Transaction

Established in 1989, Woodland Hills, CA-based Wheatman Insurance deals in retail property/casualty insurance brokerage services along with employee benefits consulting services. The company provides a comprehensive range of personal lines and financial services as well as commercial property/casualty and employee benefits insurance coverages. Wheatman Insurance caters to businesses as well as families and individuals throughout the state. On completion of the buyout, the acquired company will shift to Arthur J. Gallagher’s Woodland Hills office and operate from there.

The latest integration is anticipated to be a substantial value addition to the acquirer’s already robust inorganic portfolio. Wheatman Insurance has built a reputation for itself in becoming the leading personal lines insurance specialist in Los Angeles, which in turn, will allow the acquirer to enhance and extend its capabilities pertaining to its growing private client offering in the southwest region. Apart from solidifying its footprint in the southwest region of the United States, the acquisition is expected to boost the acquirer’s employee benefits consulting services. Given the experience and goodwill created over the years, the insurance broker is likely to leverage this expertise and the strength offered by the acquired entity.

Therefore, the transaction will help Arthur J. Gallagher earn a substantial lift for its employee benefit consulting service profile, which not only offers a detailed knowledge on the employee benefits market but also helps meeting the clients’ fundamental business objectives most efficiently. Thus, the latest consolidation is expected to reinforce Arthur J. Gallagher’s strong inorganic growth profile as well as add capabilities to its insurance brokerage service portfolio.

With respect to shoring up its existence in California and driving its property/casualty and employee benefits coverages and services, Arthur J. Gallagher acquired Binney, Chase & Van Horne, Inc. located in Pasadena, which is likely to strengthen the insurance broker’s prevalent abilities in serving nonprofit organizations.

Arthur J. Gallagher’s discreet M&A activity stands testament to its convincing inorganic growth strategy. Year to date, the company has successfully closed 26 mergers for an aggregate amount of approximately $240 million. It remains upbeat about its ability to tow in acquisition partners in its typical small tuck-in size at justifiable prices.

Over the past few years, Arthur J. Gallagher’s impressive progress has been primarily cushioned by organic sales as well as intelligent buyouts and mergers. The company has been minutely monitoring its acquisition pipeline in the retail employee benefits brokerage and wholesale brokerage areas, which remains sturdy with about $300 million of revenues. Further, driven by the number and size of non-U.S. purchases, the company’s top line, nurtured with international contribution, is likely to perk up.

Zacks Rank and Share Price Movement

Arthur J. Gallagher carries a Zacks Rank #3 (Hold). Shares of the company have rallied 15.3% year to date, outperforming its industry’s rise of 5.3%. 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 embracing the inorganic approach to enhance their portfolio for a while now. The insurance industry has been on a conspicuous acquisition spree, attributable to its all-time high available capital resource.

Recently, Enstar Holdings (US) LLC, a unit of Enstar Group Limited ESGR, signed an agreement to acquire Maiden Reinsurance North America, a U.S. diversified business of Maiden Holdings, Ltd. MHLD. The buyout will further strengthen Enstar Group’s supremacy in the market in relation with closing legacy acquisitions and also, ramping up its inorganic growth profile. Further in July, Brown & Brown, Inc.’s BRO arm, The Advocator Group, LLC, announced buying Professional Disability Associates, LLC to provide service upgrade that will ultimately lead to empowering substantial carrier, customer and client relationships.

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

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