Integrating acquisitions cost company $40.6m over nine months

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Arthur J Gallagher’s broking business made a net profit of $200.4m (£124.2m) in the first nine months of 2014, up 29.9% on the $154.3m it made in the same period last year.

Total revenues for the broking business were up 36% to $2.1bn (first nine months of 2013: $1.6bn). Organic growth in commissions and fees was 4.5%.

Earnings before interest, tax, depreciation, amortisation and change in acquisition earn-out payables (EBITDAC) in the broking segment grew by 36% to $493m (first nine months of 2013: $362.4m).

Gallagher’s group profit was up 21% to $251.9m (first nine months of 2013: $208.6m) and EBITDAC increased by 29% to $506.3m (first nine months of 2013: $391.2m).

Acquisition costs

The company also revealed that it had spent $40.6m in the first nine months of 2014 on integrating recent acquisitions. This compares with $17.3m in the first nine months of 2013.

Gallagher said that the 2014 costs were related to bringing on board 4,700 employees from the Bollinger, Giles, Oval, Crombie/OAMPS and Noraxis acquisitions, communications systems conversion costs and related performance compensation.

Gallagher chief executive Patrick Gallagher said: “The integration of our larger mergers continues as planned and on schedule and we are continuing our proven strategy of smaller tuck-in mergers.

“Large or small, our teams are melding quickly and our combined capabilities are creating game changing sales opportunities around the world. In the rating environment, we continue to see evidence that insurance pricing is rational and we are not seeing evidence of the carriers having any appetite for large rate swings seen in the past.

“We believe this is a healthy and sustainable environment for our customers, the brokers and the carriers.”

Third-quarter performance

In the third quarter of 2014 alone, Gallagher’s broking business made a net profit of $79.3m, up 30% on the $61.2m it made in last year’s third quarter.

EBITDAC increased by 44% to $194.3m.

Total revenues were up 46% to $799.8m, and organic growth for the quarter was 5.8%.

Group profit in the quarter increased by 25% to $93.6m, and group EBITDAC was up 33% to $191m.

Gallagher said: “We had an excellent quarter on all measures.”

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