Arthur J. Gallagher (AJG) Buys Tave Risk to Expand Portfolio
Arthur J. Gallagher's (AJG) acquisition of Tave Risk is expected to help the acquirer boost its property and casualty capabilities.
Arthur J. Gallagher & Co. AJG recently acquired Tave Risk Management, LLC. The terms of the transaction have been kept under wraps.
Chicago, IL-based Tave Risk Management, founded in 2000, is a retail property and casualty broker and risk advisory firm. The company is skilled in risk placement, loss forecasting, risk management cost allocation and risk financing services. It caters to large and mid-sized clients across a range of industries that include manufacturing, construction, financial services as well as high-net-worth private clients.
With the transaction, Arthur J. Gallagher will leverage Tave Risk’s experience in managing complicated, high-profile risks to increase its existing capabilities in the property and casualty insurance space.
Inorganic Growth Story
Arthur J. Gallagher boasts an impressive inorganic story. The recent buyout marks the 16th acquisition by the company quarter to date, compared with 10 buyouts in the fourth quarter of 2020 (with estimated annualized revenues of $100.2 million). It made five brokerage mergers during the third quarter of 2021, with estimated annualized revenues of $16 million. Arthur J. Gallagher’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.
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Arthur J. Gallagher remains focused on long-term growth strategies for delivering organic revenue improvement and pursuing strategic mergers and acquisitions. Its focus on productivity improvements and quality enhancements should help AJG post sturdy numbers in the future.
Other Acquisitions in the Same Space
Given the insurance industry’s adequate capital level, players like Athene Holdings ATH, Brown & Brown, Inc. BRO, and Marsh & McLennan Companies MMC are pursuing strategic mergers and acquisitions.
Athene and Apollo Global have agreed to buy a majority interest in Aqua Finance to boost Apollo’s $80 billion annual run-rate of asset origination across commercial and consumer lending platforms. Athene boasts impressive inorganic growth, driven by several buyouts and block reinsurance transactions with several companies. ATH expects its inorganic growth channel to continue to be an important driver in the future.
Brown & Brown’s subsidiary Brown & Brown Dealer Services recently acquired substantially all of the assets of Rainmaker Advisory, LLC to enhance its capabilities for the dealer customers and establish its footprint in the West Coast. 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 its geographic footprint.
Marsh & McLennan’s unit Marsh McLennan Agency acquired InSource Insurance Group to leverage InSource’s know-how in the oil and gas industry and enhance capabilities. 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.
Shares of Arthur J. Gallagher have gained 32.5% in a year, outperforming the industry’s increase of 26.9%. Efforts to ramp up the company’s growth profile and capital position should help the stock retain the price momentum.
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Shares of Athene, Brown & Brown and Marsh & McLennan have gained 90.1%, 46.3% and 46.2%, respectively, in the same time frame.
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