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Arthur J. Gallagher’s (AJG) Buyout to Solidify Canadian Base

Zacks

Arthur J. Gallagher & Co. AJG recently made an acquisition of Leystone Insurance & Financial, Inc. This buyout is expected to help the acquirer improve its employee benefits and retirement consulting services. Further, the consolidation will enable the insurance broker to fortify its presence in Ottawa. However, financial details of the transaction were kept under wraps.

Details of the Transaction

Established in 2001, Leystone Insurance is based in Ottawa, Ontario (capital of Canada), providing employee benefits and retirement consulting services with special focus on individual life insurance and investment strategies. The company caters to clients throughout the entire region of Ontario. Notably, the acquired company will continue to operate from its current location.

The latest integration is anticipated to be a substantial value addition to the acquirer’s already robust inorganic portfolio. Both Leystone Insurance and Arthur J. Gallagher share similar core values as well as strengths, which will allow the latter to solidify its base in the Canadian capital. Leystone Insurance has built a reputation over a considerable period of time and the acquirer is expected to leverage this goodwill and the strength offered by the acquired entity.

With this buyout, Arthur J. Gallagher aims to improve its employee benefits service profile, which not only offers a detailed knowledge on the employee benefits market but also helps ensuring that the clients’ fundamental business objectives are met in the most efficient manner possible. Therefore, the latest consolidation is expected to reinforce Arthur J. Gallagher’s strong inorganic growth profile as well as add capabilities to its insurance brokerage service portfolio.

With respect to strengthening its footprint in Canada and boosting its employee benefits business, the insurance broker acquired Winnipeg, Manitoba-based Belton Boisselle Ltd., which will allow it to offer an innovative and excellent solution to its clients.

Arthur J. Gallagher’s discerning M&A activity bears testimony to its compelling inorganic growth strategy. Year to date, the company has successfully completed 26 mergers for an aggregate amount of approximately $240 million. It remains optimistic about its ability to draw acquisition partners in its typical small tuck-in size at fair prices.

Over the past few years, Arthur J. Gallagher’s impressive growth has been primarily backed by organic sales as well as prudent buyouts and mergers. The company has been closely monitoring its consolidation pipeline in the retail employee benefits brokerage and wholesale brokerage areas, which remains strong with about $300 million of revenues. Further, driven by the number and size of non-U.S. buyouts, international contribution to the company’s top line is likely to improve.

Zacks Rank and Share Price Movement

Arthur J. Gallagher carries a Zacks Rank #3 (Hold). Shares of the company have rallied 22.1% in a year’s time, outperforming the industry’s rise of 7.6%. We expect top-line growth, smart acquisitions and a sturdy capital position to push the shares up in the near term.



Other Acquisitions in the Insurance Space

We have been noticing insurers walking the inorganic line to brace their portfolio for a while now. The insurance industry has been grabbing eyeballs of late with hordes of acquisitions on the back of its all-time high available capital resource.

In July, Brown & Brown, Inc.’s BRO unit, The Advocator Group, LLC, announced the buyout of Professional Disability Associates, LLC to provide enhanced services that will ultimately result in strengthening substantial carrier, customer and client relationships. Futher, Kemper Corporation KMPR completed the purchase of Infinity Property and Casualty Corporation for $1.6 billion, anticipating achieving a market leading position in nonstandard auto insurance domain.

Stock That Warrants a Look

Investors interested in another stock from the insurance industry can consider Alleghany Corporation Y, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany Corporation provides property and casualty reinsurance and insurance products in the United States and internationally. The company has delivered positive surprises in three of the last four quarters with an average beat of 17.61%.

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