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Arthur J. Gallagher (AJG) Expands in Australia With Buyout

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Arthur J. Gallagher & Co. (AJG - Free Report) recently acquired Edgar Insurance Brokers. The terms of the transaction have not been revealed yet.

Cobram, Victoria-based Edgar Insurance provides commercial insurance products and services in Australia with a client focus of rural and farm, hospitality, transport and trades.

With this acquisition, Arthur J. Gallagher will leverage the client relationships and expertise of Edgar Insurance and significantly expand the capabilities of AJG in Australia.

Arthur J. Gallagher has an impressive inorganic story with buyouts in the Brokerage and Risk Management segments. This insurance broker acquired 37 entities in the first nine months of 2023 that contributed about $475.3 million to estimated annualized revenues. The recent acquisition marks the 10th acquisition in the fourth quarter of 2023.

AJG has a solid merger and acquisition pipeline with about 45 term sheets either agreed upon or being prepared, representing more than $450 million of annualized revenues. Revenue growth rates generally ranged from 5% to 20% for 2023 acquisitions.

A solid capital position supports the insurer in its growth initiatives and it thus remains focused on continuing its tuck-in mergers and acquisitions. For 2024, AJG currently estimates about $3.5 billion of capacity to fund future M&A using only free cash and incremental borrowings.

This Zacks Rank #2 (Buy) insurance broker’s long-term growth strategies should help it deliver organic revenue improvement and pursue strategic mergers and acquisitions. The company 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 31.9% in the past year, outperforming the industry’s 19.5% increase. The solid performance of the Brokerage and Risk Management segments, strategic buyouts to capitalize on growing market opportunities and effective capital deployment should continue to drive share price higher.

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Another Acquisition in the Same Space

Given the insurance industry’s adequate capital level, another player like Brown & Brown, Inc. (BRO - Free Report) continuously make strategic acquisitions to expand globally, add capabilities and boost operations. In October 2023, BRO closed the acquisition of all the assets of Pacific Underwriters, boosting Brown & Brown’s capabilities in two different specialized niches and expanding the National Programs segment’s abilities and footprint in the Pacific Northwest.

These strategic buyouts help Brown & Brown increase commissions and fees, which, in turn, drive revenues. BRO’s impressive growth is driven by organic and inorganic means across all segments. Its solid earnings have allowed the company to expand its capabilities, with the buyouts extending its geographic footprint.

Other Stocks to Consider

Some other top-ranked stocks from the Brokerage Insurance space are Marsh & McLennan Companies, Inc. (MMC - Free Report) and Aon plc (AON - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Marsh & McLennan has a decent track record of beating earnings estimates in each of the last four quarters, the average being 6.45%. In the past year, MMC has gained 22.3%.

The Zacks Consensus Estimate for Marsh & McLennan’s 2023 and 2024 earnings per share is pegged at $7.93 and $8.67, indicating a year-over-year increase of 15.7% and 9.3%, respectively.

Aon has a decent track record of beating earnings estimates in two of the last four quarters, while missing the other two, the average being 1.41%. In the past year, AON has gained 14.3%.

The Zacks Consensus Estimate for Aon’s 2023 and 2024 earnings per share is pegged at $14.35 and $16.25, indicating a year-over-year increase of 7.1% and 13.2%, respectively.

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