Arthur J. Gallagher & Co. Signs Agreement To Acquire the Giles Group of Companies

Sep 04, 2013, 07:55 ET from Arthur J. Gallagher & Co.

ITASCA, Ill., Sept. 4, 2013 /PRNewswire/ -- Arthur J. Gallagher & Co. (NYSE: AJG) today announced that it has signed an agreement to acquire the Giles Group of Companies (Giles) headquartered in London, England. The transaction is subject to regulatory approval and is expected to close October 2013.

Giles is an independent retail broker in the United Kingdom with over 1,100 employees operating out of 43 offices in England, Scotland, Wales, Northern Ireland, Isle of Man and the Channel Islands.

"We continue to look for outstanding international partners that have a similar growth strategy and operating structure, and this is what we found in Giles.  Most importantly, Giles has a team-based sales culture which matches ours.  With our combined resources, we will be able to offer new and current clients additional and/or expanded sales and service capabilities," said J. Patrick Gallagher, Jr., Chairman, President and CEO.  "Together, we can significantly expand our operations in England and Scotland as well as add operating platforms in Northern Ireland, Wales, Isle of Man and the Channel Islands.  We are proud that this outstanding team of professionals will be joining the Gallagher family."

Brendan McManus, CEO of Giles, said: "Our team has been really impressed by the Arthur J. Gallagher culture and the level of engagement between the senior teams. It's a great opportunity to combine two high performing businesses and deliver an even better proposition to our clients."

Together Gallagher and Giles will continue their common strategies of growing organically and through mergers and acquisitions, improving productivity and enhancing service quality, and maintaining a unique sales culture.  Benefits of the acquisition are expected to include:

  • Significantly expanding Gallagher's client base in the U.K middle-market;
  • Adding significant growth in Gallagher's underwriting footprint through current underwriting business and increased retail distribution opportunities through broker networks;
  • Cross-selling opportunities across the combined network;
  • Complementing and expanding specialized niche practice groups;
  • Combining strong production talent that builds on Gallagher's successful sales team platform;
  • Driving longer-term operational efficiencies through a consolidated platform;
  • Little overlap with Gallagher's current locations.

The Combined Operation The combined operation will have approximately 70 offices and 3,100 staff in the U.K.  Giles' CEO Brendan McManus will join the AJG International Executive Committee led by David Ross, CEO of Arthur J. Gallagher International.

Retail:  Giles' retail commercial clients and networks are expected to generate over £57 million in annualized revenues in 40 offices. They will augment Arthur J. Gallagher's representation within the United Kingdom and will give Gallagher the scale needed in larger regional markets.

As part of this transaction this will include two UK broker networks, Westinsure and Compass Broker Services, with a combined membership of over 200 network brokers. These two networks offer a strong national alliance for smaller brokers and bring a new proposition to Arthur J. Gallagher.

The Giles commercial lines business complements Gallagher's existing expertise groups.  Approximately 58% of its business is niche, including transportation, health and social care and professional indemnity.

Rossborough: The transaction also includes the Rossborough group of companies with annualized revenues of £13 million.  The operation is based in The Channel Islands and the Isle of Man, and is a general and healthcare insurance broking business.

Underwriting: Giles' underwriting unit, consisting of MGAs that provide products for both 'in house' and external brokers, is expected to generate over £10 million in annualized revenues.  This underwriting unit comprises INK Underwriting Agencies Limited, which has an established reputation in the market, and will join up with the existing Gallagher underwriting teams.  The combined entity will increase Gallagher's distribution platform and product range.

Wholesale:  Giles' wholesale business includes a Lloyd's broker and a reinsurance business that is expected to generate over £5 million in annualized revenues.   As the result of this acquisition, this wholesale business will offer additional opportunities to distribute products through Gallagher's underwriting and distribution teams and increase offerings to the independent brokers.  FSJ Broking, the Lloyd's broker based in the City of London, focuses on motor fleet, high-hazard commercial accounts and non-standard risks.

Personal Lines: Giles' personal lines, including high net worth business, are expected to generate over £5 million in annualized revenues.  It offers a range of motor, home and personal marine insurance.  This operation has its larger centers based in Scotland and Wales.  The business has been very successful in growing through cross-selling and the increased scale will give the combined entity a solid market presence and platform for future growth.

Financial Terms The transaction is expected to generate over £90 million in annualized revenue across the five operating units and to generate annualized EBITDAC of over £30 million in 2014  (and then over £35 million in 2015) before integration costs, which are expected to range between £1.5 million to £2.5 million per quarter through early 2015.  Total net consideration is approximately £233 million payable in cash (approximately £237 million in net cash less the value of tax and other assets acquired).  Gallagher expects to finance the transaction initially using free cash and borrowings on its line of credit.  Gallagher expects to repay the line of credit over the following six months principally through the issuance of long-term notes.

Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Itasca, Illinois, has operations in 20 countries and offers client-service capabilities in more than 140 countries around the world through a network of correspondent brokers and consultants.

Information Regarding Forward-Looking Statements This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "anticipates," "believes," "contemplates," "see," "should," "could," "estimates," "expects," "intends," "plans" and variations thereof and similar expressions, are intended to identify forward-looking statements.  Examples of forward-looking statements regarding the Giles acquisition include, but are not limited to, statements regarding integration activities, future revenue and earnings impact, the size and status of the combined organization within the United Kingdom, the impact on our ability to attract and retain producers and leaders within the organization, cross-selling and expense saving opportunities, the ability of the combined business to continue to attract, execute and integrate future bolt-on acquisitions, expected levels of growth within the acquired business, drivers of organic growth and anticipated future results or performance of any segment or the Company as a whole.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include changes in worldwide and national economic conditions (including an economic downturn and uncertainty regarding the Euro zone), changes in premium rates and in insurance markets generally, changes in the insurance brokerage industry's competitive landscape, unexpected regulatory changes, and the difficulties inherent in combining the cultures and systems of different companies.

Please refer to Gallagher's filings with the SEC; including Item 1A, "Risk Factors," of its Annual Report on Form 10-K for the fiscal year ended December 31, 2012, for a more detailed discussion of these and other factors that could impact its forward-looking statements.

Information Regarding Non-GAAP Measures This press release refers to EBITDAC (defined as earnings from continuing operations before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn out payables), which is a measure not in accordance with, or an alternative to, the GAAP information provided herein. Gallagher believes EBITDAC provides a meaningful representation of its operating performance and improves the comparability of results between periods by eliminating the impact of certain items that have a high degree of variability.  The most directly comparable GAAP measure is earnings from continuing operations.  For our two operating segments (Brokerage and Risk Management) on a combined basis, earnings from continuing operations were $198 million in 2012.

Contact:  Marsha Akin Director – Investor Relations 630-285-3501 and/or

SOURCE Arthur J. Gallagher & Co.