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Arthur J. Gallagher Boosts Brokerage Services With Buyout


Arthur J. Gallagher & Co. AJG recently purchased Associated Insurance Services, Inc., which will help to boost its brokerage operations and expand its geographical footprint. The financial details of the transaction, however, remain undisclosed.

Details of the Transaction

Westlake Village, CA-based Associated Insurance was established in 1962. The company operates as an independent commercial and personal lines property/casualty insurance agency, catering to construction industry, retail, hospitality and manufacturing clients. Post takeover, the company will continue to run its business from its current location.

The latest buyout is expected to strengthen the already robust inorganic growth portfolio of the acquirer. Also, Associated Insurance’s in-depth expertise and aforementioned industry focus are anticipated to be highly value accretive to Arthur J. Gallagher’s client portfolio. With this buyout, the insurance broker will not only be able to improve its brokerage operations but also strengthen its footprint in the Southwest region of the United States with better retail property/casualty brokerage services.

Arthur J. Gallagher’s Growth Trajectory

Over the past few years, Arthur J. Gallagher’s impressive growth has been mainly fueled by organic sales as well as prudent acquisitions and mergers. To that end, the insurance broker has closed 27 acquisitions with annualized revenues of over $129.7 million in the first nine months of 2017. In addition, the company has put in substantial efforts to further accelerate its acquisition activity in the retail employee benefits brokerage and wholesale brokerage areas with a goal to pursue smaller tuck-in mergers in 2017. Notably, Arthur J. Gallagher’s merger and acquisition pipeline remains strong with about $250 million of revenues.

Such strategic initiatives will improve the company’s top line, resulting in the overall company’s growth. Additionally, the company’s brokerage segment has been witnessing excellent results over a considerable period of time. Notably, the company expects better organic growth for the brokerage segment in 2018 than 2017. Therefore, Arthur J. Gallagher’s stellar growth trajectory continues to remain impressive.

Zacks Rank and Share Price Movement

Arthur J. Gallagher carries a Zacks Rank #3 (Hold). Shares of Arthur J. Gallagher have gained 23.1% year to date, outperforming the industry’s rally of 21.6%. We expect top-line growth, prudent acquisitions and a strong capital position to drive the shares higher in the near term.

Stocks to Consider

Some better-ranked stocks from the insurance industry include Radian Group Inc. RDN, First American Financial Corporation FAF and Prudential Financial, Inc. PRU, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Radian Group offers mortgage and real estate products and services in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 4.52%.

First American Financial offers financial services. The company delivered positive surprises in all of the last four quarters with an average beat of 12.74%.

Prudential Financial provides insurance, investment management, and other financial products and services in the United States and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 0.16%.

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