Yahoo Finance Arthur J. Gallagher (AJG) Expands Brokerage Business With Buyout
Arthur J. Gallagher & Co. AJG recently acquired Bernard Benefits and Bernard Healthcare Financial Planning, subsidiaries of Bernard Health. The buyout will boost the Brokerage business, which contributed 88.9% to the total revenues in the first quarter.
Bernard Benefits is an employee and health benefits brokerage firm focused on small businesses in Texas, Indiana and Tennessee. Bernard Healthcare Financial provides consulting services to families and individuals on coverage of health insurance. This buyout complements AJG’s existing employee benefits offerings. This move will aid the top-line improvement through higher commissions and fees.
The primary source of AJG’s revenues is commissions, which are determined as a percentage of premiums paid by clients. As the premium rates are expected to continue to rise due to loss cost trends, the commissions received will increase in the future.
Arthur J. Gallagher has an impressive inorganic story with a number of buyouts in the Brokerage and Risk Management segments. This insurance broker made 10 acquisitions in the first quarter of 2023, contributing about $69 million to estimated annualized revenues.
This Zacks Rank #3 (Hold) insurance broker has a strong merger and acquisition pipeline with about $300 million in revenues, associated with about 40 term sheets either agreed upon or prepared. Revenue growth rates generally range from 5% to 20% for 2023 acquisitions.
The company seeks to grow inorganically to support geographic presence expansion, broaden service capabilities and diversify its business mix. The buyout of Bernard’s subsidiaries was in line with AJG’s objective of acquiring companies with a middle or small client focus and significant expertise in one of the niches.
A solid capital position supports AJG in its growth initiatives, and it thus remains focused on continuing its tuck-in mergers and acquisitions. The company expects a merger and acquisition capacity of more than $3 billion through the end of 2023. AJG is focused on productivity improvements and quality enhancements, which should help the company post sturdy numbers in the future.
Shares of Arthur J. Gallagher have gained 8% year to date compared with the industry’s rise of 2.4%.
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Given the insurance industry’s adequate capital level, players like Brown & Brown, Inc. BRO pursue strategic mergers and acquisitions. Recently, this insurance broker inked a deal to buy Kentro Capital Limited. The acquisition, when it materializes, will boost Brown & Brown’s presence in parts of England.
Brown & Brown and its subsidiaries continuously make strategic acquisitions to expand globally, add capabilities and boost operations. Also, these strategic buyouts help Brown & Brown increase commissions and fees, which, in turn, drive revenues. Brown & Brown’s impressive growth is driven by organic and inorganic means across all segments. Consistent operational results have been aiding Brown & Brown in generating solid cash flows for deployment in strategic initiatives.
Key Picks
Some better-ranked insurers from the insurance industry are Erie Indemnity ERIE and Ryan Specialty Holdings RYAN.
The Zacks Consensus Estimate for ERIE’s 2023 and 2024 earnings per share indicates a year-over-year increase of 26.1% and 13.6%, respectively. In the year-to-date period, ERIE has lost 11.3%. ERIE sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ryan Specialty Holdings’ 2023 and 2024 earnings per share indicates a year-over-year increase of 15.7% and 23.3%, respectively. In the year-to-date period, RYAN has lost 3.2%.
RYAN’s earnings surpassed estimates in two of the last four quarters, missed in one, and met estimates in one, the average beat being 2.7%. It currently carries a Zacks Rank #2 (Buy).
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Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report
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