Arthur J. Gallagher (AJG) Boosts Underwriting With Buyout
Arthur J. Gallagher's (AJG) subsidiary completes the buyout of Manchester Underwriting to boost its underwriting business.
Arthur J. Gallagher & Co.’s AJG specialist underwriting subsidiary Pen Underwriting recently acquired Manchester Underwriting Agencies Limited and its wholly-owned subsidiary, Manchester Underwriting Management Limited (“MUM”). The terms of the transaction have been kept under wraps.
Founded in 2010, UK-based Manchester Underwriting is a specialty underwriting agency, which deals with insurance brokers locally and globally, and offers a market-leading service and realistic approach to underwriting. Its current products include Professional Indemnity, Directors & Officers Liability, Management Liability, Crime, Employers Liability, Public and Products Liability. Manchester Underwriting Management specializes in providing professional indemnity and management liability coverages for SMEs through its clients.
With the recent buyout, Arthur J. Gallagher and its subsidiary will leverage the robust underwriting discipline of MUM as well as its focus on writing profitable business. The deal is expected to provide the acquirer with a solid book of business and better market expertise.
The latest transaction marks the second buyout for the insurance broker in fourth-quarter 2021.
Inorganic Growth Story
Acquisitions enable Arthur J. Gallagher to expand into desirable geographic locations, extend its presence in retail and wholesale insurance and reinsurance brokerage services markets, and increase the volume of general services that it currently provides. Its inorganic pipeline remains strong with around $300 million of annualized revenues associated with 40 term sheets signed or being prepared.
Arthur J. Gallagher currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A solid capital position supports Arthur J. Gallagher in its growth initiatives. The company estimates more than $2.5 billion for mergers and acquisitions, consisting of $1 billion in cash, about $650 million of net cash generation in the second half of 2021, and $600 million to $700 million of borrowing capacity.
So far this year, it has made 24 acquisitions. Revenue growth rates have generally been 5-15% for 2021 acquisitions to date. The buyouts provide the company with incremental capabilities and services to assist clients across Australia, the U.K., Europe, and the United States. The company has been intensifying focus on its long-term growth strategies of delivering organic revenue growth and pursuing mergers and acquisitions.
Other Acquisitions in the Same Space
There have been a host of acquisitions in the insurance space of late, given its significant capital availability. Brown & Brown, Inc.’s BRO subsidiary Bridge Specialty Group, LLC has acquired substantially all assets of Gremesco of New Jersey, LLC. Marsh McLennan’s MMC Marsh McLennan Agency has acquired Vaaler Insurance. Willis Towers Watson plc WLTW has inked an initial, non-binding agreement to acquire Leaderim to strengthen its presence in Israel.
Price Performance
Shares of Arthur J. Gallagher have gained 42.7% in a year, outperforming the industry’s increase of 23.2%. Efforts to ramp up the company’s growth profile and capital position should help the stock retain the price momentum.
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