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Top insurance brokers, No. 4: Arthur J. Gallagher & Co.

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2016 brokerage revenue: $4.19 billion

Percent increase (decrease): 4.9%

After spending the previous couple of years digesting some large international acquisitions, in 2016 — and so far in 2017 — Arthur J. Gallagher & Co. concentrated on its long-established strategy of buying numerous smaller agents and brokers and folding them into the larger organization.

Despite the high levels of competition for broker acquisitions, Gallagher continues to profitably bolt on smaller rivals and grow its business in a sluggish insurance market, analysts say.

In addition, the brokerage is investing in technology to help grow and streamline its business, its most senior executive says.

“They are largely done integrating the large international acquisitions and are now doing lots and lots of bolt-on acquisitions,” said Paul Newsome, managing director at Sandler O’Neill & Partners L.P. in Chicago.

The international acquisitions in Australia, Canada, New Zealand and the United Kingdom in 2013 and 2014 expanded Gallagher’s global footprint, but concentrating on acquiring many smaller brokers is more in line with its traditional strategy, said Mark A. Dwelle, an analyst at RBC Capital Markets L.L.C. in Richmond, Virginia.

Those “bolt-on” acquisitions now include smaller brokers in the international markets Gallagher has expanded into, said J. Patrick Gallagher Jr., chairman, president and CEO of the brokerage.

“We are building a pipeline of acquisition opportunities and have closed some acquisitions in Australia, New Zealand, the United Kingdom and Canada and, of course, in the United States,” he said.

Gallagher completed 37 acquisitions in 2016, representing about $138 million in total revenue, as well as 12 deals in the first quarter of 2017, representing about $62.5 million in revenue, Mr. Gallagher said. Most of the deals were for brokerages that have less than $10 million in annual revenue, he said.

It’s largest acquisition in 2016 was San Francisco-based Altman & Cronin Benefit Consultants L.L.C., for which it paid $40.5 million plus future earnout payments, according to stock market filings.

Competition to buy brokers remains high, so “98% of our due diligence is on culture; we don’t do a deal to do a deal,” he said.

“We have a unique culture that emanates from being a family business — and we are buying family businesses — and that culture is one of teamwork, which allows us to naturally make sure that the best expertise that we have is at the point of the customer,” Mr. Gallagher said.

Despite the competition for M&As, Gallagher has largely been successful in finding profitable deals, said Mr. Dwelle of RBC Capital. “They take a long-term approach, and the deals are usually accretive to them once they get the synergies.”

But further increases in M&A prices could threaten that, said Mr. Newsome of Sandler O’Neill.

“If prices continue to rise, they will not be able to complete acquisitions that are economically favorable,” he said.

Gallagher’s brokerage revenue grew 4.9% to $4.19 billion in 2016, and it remains No. 4 on Business Insurance’s 2017 ranking of the world’s largest brokers. Gross revenue increased 3.7% to $5.59 billion.

In addition to investing in acquisitions, Gallagher is continuing to invest in technology, Mr. Gallagher said.

The brokerage has a cyber liability policy for small-to-medium accounts that binds 100 quotes a day based on a few underwriting questions and has no human involvement, and it plans to roll out the technology for many of its other smaller programs, he said.

“That doesn’t mean that a complex account that spends $2 million on their insurance is going to go online and click, click, click and be done. But the things that we do together are going to be more digitally based,” he said.

Meanwhile, Gallagher moved its headquarters earlier this year and is now back in the Rolling Meadows, Illinois, building it left 27 years ago, though it has been completely refurbished and updated.