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Arthur J. Gallagher (AJG) Boosts Real Estate Insurance Suite

Arthur J. Gallagher & Co. AJG has acquired Real Estate Insurance Solutions to consolidate its real estate portfolio. The terms of the transaction have not been disclosed.

Park City, UT-based Real Estate Insurance was founded in 2004. This company provides real estate errors & omissions insurance/cyber liability. It serves commercial and residential real estate agents and brokers, business brokers, appraisers, home inspectors, title insurance agents, mortgage brokers, leasing agents and property managers. Thus, the addition will help the acquirer boost real estate practice offerings.

Arthur J. Gallagher boasts an impressive inorganic story. This marks the 10th buyout so far this quarter. AJG made 10 buyouts in the fourth quarter of 2020 with estimated annualized revenues acquired of $100.2 million. The acquirer’s merger and acquisition pipeline is quite strong with about $400 million revenues associated with nearly 50 term sheets either agreed upon or being prepared.

Arthur J. Gallagher’s revenues are geographically diversified with strong domestic and international operations and a compelling product and service portfolio. Revenue growth rates have generally been 5-15% for 2021 acquisitions to date.

A solid capital position supports Arthur J. Gallagher in its growth initiatives. This Zacks Rank #3 (Hold) insurance broker 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.

Arthur J. Gallagher remains focused on long-term growth strategies for delivering organic revenue improvement and pursuing strategic mergers and acquisitions. AJG is focused on productivity improvements and quality enhancements that should help it post sturdy numbers in the future.  

Given the insurance industry’s adequate capital level, players like Brown and Brown Inc. BRO, Marsh & McLennan Companies MMC and Chubb Limited CB are pursuing strategic mergers and acquisitions.

Recently, Brown and Brown acquired Heacock Insurance to boost its presence in central Florida. Brown & Brown intends to make consistent investments in boosting organic growth and margin expansion. BRO’s solid earnings have allowed it to expand its capabilities, with the buyouts extending geographic footprint.

Marsh & McLennan’s unit Marsh McLennan Agency acquired Pelnik Insurance to widen its client offerings in the North Carolina region. Marsh & McLennan has made numerous purchases within its different operating units that enabled it to enter new geographies, expand within the existing locations, foray into new businesses, develop new segments and specialize within its current businesses.

Chubb inked a definitive agreement to take over the life and non-life insurance companies of Cigna to expand its presence in the Asia-Pacific region. The insurer has always considered acquisitions an effective strategy for growth and global expansion. Acquisitions provide Chubb with a competitive edge in terms of scale, efficiencies and balance sheet size, which would lead to considerable value creation in the future.

Shares of Arthur J. Gallagher have gained 33.2% year to date compared with the industry’s 25.7% increase. The efforts to ramp up its growth profile and capital position should continue to drive the share price higher.

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Shares of Brown and Brown, Marsh & McLennan and Chubb have gained 38.8%, 44.5% and 25.4%, respectively, in the same time frame.  

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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