Arthur J. Gallagher's (AJG) Acquisitions to Boost Core Business
Arthur J. Gallagher & Co. AJG recently announced its captive and alternative risk transfer solutions subsidiary, Artex’s acquisition of Frontier Financial Services Limited. The terms of the transaction are not revealed yet.
Bermuda-based Frontier Financial is a management firm that provides recruitment, consulting, business and immigration services to its insurance-linked securities and reinsurance clients. The addition of this entity to the acquirer’s portfolio is a strategic fit as it will enhance its existing growth opportunities in the consulting space.
On the same day, AJG also announced the acquisition of Morgan, Trevathan & Gunn, Inc. However, the terms of which were not disclosed. The acquiree specializes in the trucking industry as a retail insurance broker for clients in Kentucky and surrounding states. This acquisition would add to AJG’s expertise in the transportation space and aid in tapping growth opportunities of this market.
Inorganic Growth Story
Arthur J. Gallagher has an impressive inorganic story with buyouts made in the Brokerage and Risk Management segments. This insurance broker acquired 25 entities in the first half of 2023, which contributed about $418 million to estimated annualized revenues. AJG has a strong merger and acquisition pipeline with about $300 million of revenues, associated with about 55 term sheets either agreed upon or being prepared, representing more than $700 million of annualized revenues.
A solid capital position supports this insurance broker 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 and another $3 billion in 2024 without using any equity.
This Zacks Rank #3 (Hold) insurance broker’s long-term growth strategies should help it deliver organic revenue improvement and pursue strategic mergers and acquisitions. AJG is focused on productivity improvements and quality enhancements that should help it post sturdy numbers in the future.
Shares of Arthur J. Gallagher have gained 22.1% year to date, outperforming the industry’s 13.4% increase. The efforts to ramp up its growth profile and capital position should continue to drive the share price higher.
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Given the insurance industry’s adequate capital level, players like Marsh & McLennan Companies, Inc. MMC pursue strategic mergers and acquisitions. Recently, Marsh, its business unit, inked a deal to purchase the entire outstanding share capital of the Australia-based specialist insurance broker Honan Insurance Group Pty Ltd. Management of Marsh believes that the inclusion of Honan’s well-established capabilities, specifically in the field of corporate risk and strata insurance, will enhance its specialist competence. This, in turn, will enable Marsh to better serve its client base across Australia and New Zealand.
Acquisitions form one of the core growth strategies of Marsh & McLennan. Buyouts, similar to the latest one, add strength to its capabilities, expand its services offerings and enable the company to enter new geographies and solidify its foothold across existing markets. An upgraded services suite is likely to lure more customers and contribute more to MMC’s revenues in the days ahead.
Stocks to Consider
Some better-ranked stocks from the Brokerage Insurance space are Brown & Brown, Inc. BRO and Ryan Specialty Holdings, Inc. RYAN. Brown & Brown sports a Zacks Rank #1 (Strong Buy), while Ryan Specialtypresently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Brown & Brown2023 and 2024 earnings per share (EPS) is pegged at $2.69 and $2.96,indicating a year-over-year increase of 18% and 10%, respectively. In the year-to-date period, BRO has gained 29.1%.
BRO beat estimates in three of the last four quarters and missed once, the average being 4%.
Ryan Specialty has a decent track record of beating earnings estimates in two of the last four quarters, meeting once and missing the other time, the average being 2.4%.In the year-to-date period, RYAN has gained 18.6%.
The Zacks Consensus Estimate for Ryan Specialty 2023 and 2024 EPS is pegged at $1.39 and $1.68, indicating a year-over-year increase of 20.9% each year.
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Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report
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