Broker paid average of 7.6 times earnings for its 31 acquisitions in 2013

Arthur J Gallagher’s top executives say they continue to see acquisition opportunities in the UK, as private equity firms that bought brokers before the credit cruch seek an exit.

They also underscored the importance of the Gallagher Basset claims administration business to the overall company.

Buying opportunities

Speaking to analysts following the release of Gallagher’s full-year 2013 results yesterday, group chief financial officer Douglas Howell said that his firm’s 2011 acquisition of Heath Lambert and last year’s Giles deal has marked the company out as a player in the UK retail broking market.

He said: “We are getting presented with more opportunities.

“The brokers [in the UK] are keenly aware of what we do in the US. They like our niches, they like our resources.

“They see that moving from a small independent to teaming up with Gallagher is a great opportunity.”

Gallagher group chief executive Patrick Gallagher added that in previous years, the UK broker M&A market had become “overheated” with price to earnings multiples that were “off the scale”.

But he added: “Now you have private equity firms biting the bullet and realising they have to exit, and expectations in pricing have come more into line with what we are comfortable paying.

“It has been a great opportunity as one of the companies that has kept its powder dry to be able to move into that, get reasonable multiples and bring these teams on board who are excited to be a part of what we are building.”

Gallagher is in exclusive talks to buy UK broking group Oval, and is thought to be interested in buying Guernsey-based broker Heritage.

The company made 31 acquisitions worldwide in 2013, paying an average of 7.6 times earnings before interest, tax, depreciation, amortisation and change in acquisition earn-out payables.

‘The money’s in claims’

The company also stressed the importance of its third-party claims administration business, Gallagher Bassett, to its overall operations.

Gallagher’s risk management division won a claims outsourcing contract with an insurer, which came into force on 1 January.

Citing figures from the Insurance Information Institute that between 60% and 65% of the $1.5trn global non-life premium are paid out in claims, Patrick Gallagher said: “Where’s the money in the insurance business? It’s in the claims. And where is the opportunity to help our clients save money? It’s in the outcomes of those claims.

“We think we can prove that our outcomes are superior. When you see major insurance companies outsourcing their business to Gallagher Bassett, they are essentially saying that their capital will be better served by us handling their claims.”

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