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Arthur J. Gallagher (AJG) Expands in US With Eastern Insurance

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Arthur J. Gallagher & Co. (AJG - Free Report) recently agreed to acquire the subsidiary of Eastern Bank, Eastern Insurance Group, LLC. Pending regulatory approval, the transaction is expected to close in the fourth quarter of 2023.

Natick, MA-based Eastern Insurance is one of the largest independent insurance agencies in New England, where it has exhibited steady organic growth. The company offers comprehensive commercial property, casualty and personal lines products as well as employee benefits consulting to clients throughout the northeast U.S. region. For the trailing 12 months ended Jun 30, 2023, the company’s pro forma revenues were around $104 million and EBITDAC was nearly $37 million.

With this acquisition, Arthur J. Gallagher will leverage the expertise of Eastern Insurance in retail, construction, real estate and hospitality, and enhance the value of AJG and significantly expand its capabilities in the region.

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. 

Price Performance

Shares of Arthur J. Gallagher have gained 35.2% in the past year, outperforming the industry’s 24.1% increase. The efforts to ramp up its growth profile and capital position should continue to drive the share price higher.

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Another Acquisition in the Same Space

Given the insurance industry’s adequate capital level, players like Marsh & McLennan Companies, Inc. (MMC - Free Report) pursue strategic mergers and acquisitions. Recently, Marsh, MMC’s 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 - Free Report) and Ryan Specialty Holdings, Inc. (RYAN - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Brown & Brown’s 2023 and 2024 earnings per share is pegged at $2.69 and $2.96, indicating a year-over-year increase of 18% and 10%, respectively. In the past year, BRO has gained 22.3%.

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 past year, RYAN has gained 20.8%.

The Zacks Consensus Estimate for Ryan Specialty’s 2023 and 2024 earnings per share is pegged at $1.39 and $1.68, respectively, indicating a year-over-year increase of 20.9% each year.

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