Arthur J. Gallagher & Co.’s all-cash $13.45 billion deal to buy AssuredPartners Inc. will add $2.9 billion in annual revenue and 10,900 staff to the brokerage and allow it to make more acquisitions in the future, Gallagher’s top executive said Monday.
The deal will consolidate Gallagher’s position as the world’s third-largest insurance brokerage, expand its presence in the U.S. middle market for property/casualty insurance and employee benefits, and add some specialty and international insurance business.
On a pro forma basis, Gallagher’s annual revenue will grow to $14 billion.
The purchase price reflects net consideration of $12.45 billion and a $1 billion deferred tax asset, Gallagher said. AssuredPartners —the 11th largest brokerage of U.S. business, according to Business Insurance’s most recent ranking, with $2.49 billion in 2023 revenue —reported $2.9 billion in annualized revenue as of Sept. 30 and $938 million in earnings before interest, taxes, depreciation, amortization and coronavirus, a standard measure of brokerage profitability.
Gallagher also on Monday announced a $8.5 billion stock offering to help fund the deal. The acquisition is expected to close in the first quarter of 2025.
The price reflects a 14.3 times EBITDAC multiple. That is lower than the 22 times EBITDAC that Aon PLC paid for NFP Corp. and the 21 times EBITDAC that Marsh & McLennan Cos. Inc. paid for McGriff Insurance Services LLC earlier this year, according to a note by Wells Fargo Securities LLC issued Monday. But it is higher than the 10-11 times multiples that are generally being paid for “bolt-on” acquisitions, “which is not surprising as larger deals go for higher multiples,” the note said.
The valuation also reflects the fact that Gallagher is already a large middle market broker, and the purchase of AssuredPartners is not a strategic move into another market sector, said Timothy J. Cunningham, managing principal at Optis Partners LLC in Chicago.
“It was very well priced compared to other large deals that a number of other brokers have done,” said Meyer Shields, Baltimore-based managing director at Keefe, Bruyette & Woods Inc.
With other large brokers recently making significant middle-market purchases, there are fewer buyers in the market, and a slowdown in property/casualty rate hikes may also have lowered the price, he said.
On a conference call with analysts Monday, Gallagher said it expects to see about $160 million in revenue synergies and real estate and other savings, but J. Patrick Gallagher, chairman and CEO, said savings are “not coming from laying a lot of people off.”
A Gallagher spokesman said in an email: “We expect all AssuredPartners employees to transition to Gallagher.”
Gallagher estimates total integration costs will be about $500 million over five years. The brokerage plans to make about $200 million in retention awards to AssuredPartners’ staff.
Assured Partners was founded in 2011 by former Brown & Brown Inc. executive Jim Henderson. It is headquartered in Orlando, Florida, and has about 400 offices in the United States, United Kingdom and Ireland, and its revenue mix is 59% retail property/casualty, 24% retail employee benefits and 17% wholesale and specialty, according to a Gallagher presentation. It reported 6.7% organic growth in the third quarter.
The company has acquired about 500 other brokerages since its founding, including 200 since 2020, and offers the potential for Gallagher to accelerate its acquisition program, Mr. Gallagher said.
Most of AssuredPartners’ deals were locally sourced without a competitive process, and Gallagher did not “get a look” at 94% of the AssuredPartners deals, Mr. Gallagher said.
In the future, the combined mergers and acquisitions team of the two brokerages could put together more than 100 deals a year, compared with the 50 to 60 that Gallagher currently completes, he said.
Gallagher has made hundreds of acquisitions over the past four decades, including significant acquisitions such as the 2021 deal to buy Willis Towers Watson PLC’s reinsurance business.
For GTCR LLC, which was the founding investor in AssuredPartners in 2011 and re-acquired a majority stake in 2019, the five-year ownership span was normal for private-equity firms, which usually raise money in 10-year funds, said Dave Donnini, Chicago-based managing director, head of business and consumer services, at GTCR.
With the sale, GTCR, which had been a founding investor in Alliant Services Inc., will no longer have any insurance brokerage holdings, he said.
“We tend to do one platform at a time in a given industry, especially an acquisitive platform, so they’re not competing with each other,” Mr. Donnini said.
GTCR likes the insurance brokerage business, and “if the right opportunity comes along at some point down the road,” it may consider reinvesting in the sector, he said.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.