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Arthur J. Gallagher (AJG) Buys Five Points to Expand Portfolio

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Arthur J. Gallagher & Co. (AJG - Free Report) recently acquired Five Points Benefits Solutions, LLC. The terms of the deal were kept under wraps.

Franklin, TN–based Five Points Benefits Solutions was founded in 2011. The company offers its services across Tennessee, Georgia and Kentucky. Five Points Benefits, being an employee benefits consultant, provides insurance, retirement and wellness solutions, online enrollment, benefits administration, along with benefits technology to public-sector clients.

With this latest addition to its portfolio, Arthur J. Gallagher will be able to gain from Five Points Benefits’s flourishing business that will strengthen and boost the acquirer’s public sector benefit offerings. The transaction will help the acquirer expand its presence in Tennessee and across the Heartland region.

Inorganic Growth Story

Arthur J. Gallagher boasts an impressive inorganic story. The recent buyout marks the 18th acquisition by the company quarter to date, compared with 10 buyouts in the fourth quarter of 2020 (with estimated annualized revenues of $100.2 million). It made five brokerage mergers during the third quarter of 2021, with estimated annualized revenues of $16 million. Arthur J. Gallagher’s merger and acquisition pipeline is quite strong with about $400 million revenues associated with nearly 50 term sheets either agreed upon or being prepared.

Arthur J. Gallagher’s revenues are geographically diversified with strong domestic and international operations and a compelling product and service portfolio. Revenue growth rates have generally been 5-15% for 2021 acquisitions to date.

A solid capital position supports Arthur J. Gallagher in its growth initiatives. This Zacks Rank #3 (Hold) insurance broker estimates more than $2.5 billion for mergers and acquisitions, consisting of $1 billion in cash, about $650 million of net cash generation in the second half of 2021, and $600 million to $700 million of borrowing capacity.

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

Arthur J. Gallagher remains focused on long-term growth strategies for delivering organic revenue improvement and pursuing strategic mergers and acquisitions. Its focus on productivity improvements and quality enhancements should help AJG post sturdy numbers in the future. 

Other Acquisitions in the Same Space

Given the insurance industry’s adequate capital level, players like Markel Corporation (MKL - Free Report) , HCI Group Inc. (HCI - Free Report) and Stewart Information Services Corporation (STC - Free Report) are pursuing strategic mergers and acquisitions.

Markel entered into an agreement with Metromont LLC to purchase the majority interest in the latter. With this transaction, MKL is expected to benefit from Metromont’s solid reputation in the market and its knowhow in the precast concrete industry.

Markel considers strategic buyouts a prudent approach to ramp up its growth profile. Acquisitions helped MKL enhance its surety capabilities, ramp up Markel Ventures’ revenues and expand its reinsurance product offerings. Markel has been pursuing acquisitions for a while to achieve profitable growth in insurance operations and create additional value on a diversified basis in Markel Ventures operations.

HCI Group has agreed to acquire United Insurance Holdings Corp.’s personal lines insurance business in the states of Georgia, North Carolina, and South Carolina. This transaction reinforces HCI Group’s growth strategy to expand into new geographies.

Well performing Homeowners Choice and TypTap coupled with conservative reserving practice should continue to drive HCI Group.

Stewart Information Services has acquired Devon Title Agency to expand in Michigan. Stewart Information has a sizable merger and acquisition pipeline.

Stewart Information Services remains focused on improving operational efficiencies by adding scale, investing in priority markets and strengthening core business with real estate technology and services.

Price Performance

Shares of Arthur J. Gallagher have gained 34.8% in a year, outperforming the industry’s increase of 26.2%. Efforts to ramp up the company’s growth profile and capital position should help the stock retain the price momentum.

Zacks Investment ResearchImage Source: Zacks Investment Research

Shares of Markel, HCI Group and Stewart Information have gained 22%, 69.1% and 59.4%, respectively, in the same time frame.