Midway through 2010, Arthur J. Gallagher & Co. has picked up where it left off in 2009 by continuing its growth-through-acquisition strategy while maintaining close relationships with its clients.

Coming off of a record 37 acquisitions in 2008, the Itasca, Ill.-based brokerage pulled off another 15 deals in 2009 and has completed six deals already in the first half of this year.

Gallagher's growth-through-acquisition strategy continues to pay off and Gallagher Chairman, President and CEO J. Patrick Gallagher Jr. sees no reason to stop.

“2009 was a very good year for us and, so far, this year has been as well,” Mr. Gallagher said. “We're in a unique situation in that we are consistently growing despite the soft marketplace.”

Gallagher's brokerage revenues rose 6.2% to $1.71 billion in 2009 from $1.61 billion in 2008. Its commercial retail brokerage revenue rose 13.4% to $713.5 million from $629.3 million. That makes Gallagher the world's fourth-largest insurance brokerage in the 2010 Business Insurance ranking.

Aiding that steady climb was the early 2009 acquisition of Liberty Mutual Group Inc.'s Midwest and Southeast middle-market commercial property/casualty and its Wausau Signature Agency business.

The deal, which included an initial payment of $44 million in cash and stock and additional payments up to $120 million, was the biggest the brokerage had ever completed, Mr. Gallagher said, adding that it also helped the brokerage “overcome the head winds of the soft market” and put it in position to continue its upward revenue trend through 2010.

“We've put ourselves in a strong place,” Mr. Gallagher said. “If the market were to just flatten out a little bit, we'd probably put ourselves up even further.”

Gallagher obtains about 20% of its revenue from fees while the remaining 80% is from commissions and investments, with commissions up 8.8% from the previous year and fees up 13%.

Mr. Gallagher said the brokerage has a longtime stance of automatically disclosing supplemental compensation paid by underwriters. He added that most of Gallagher's clients prefer the brokerage do business on commission.

“I think we're better off this way and it helps us stay competitive,” Mr. Gallagher said.

He said Gallagher is not trying to compete with the likes of Marsh & McLennan Cos. Inc., Aon Corp. or Willis Group Holdings P.L.C.—the world's three largest brokers. Instead, Gallagher is focused on the niche markets in which it specializes.

It's that expertise in the niche markets that separates Gallagher from the large brokers targeting middle-market firms, said Dean Evans, New York-based equity research analyst with Keefe, Bruyette & Woods Inc. He also said Gallagher's restructuring efforts, which included reducing its workforce by about 400 employees, have given the brokerage a good footing despite declining market conditions.

“There's not too much extra fat to cut,” Mr. Evans said. “As with any broker, it's a difficult environment because pricing is going down and exposures are down and organic growth is down...but they've hunkered down and they've actually been getting some market expansion.”

While the brokerage arm of Gallagher has held strong during the soft market, its third-party claims adjustment practice, Gallagher Bassett Services Inc., has experienced “some margin pressure” as a result of fewer claims being made, Mr. Evans said.

However, Messrs. Evans and Gallagher agree that having the service under the Gallagher name provides a diversification and is a strength for the company.

“It's a very unique service for brokerages to have and it's the type of service that most brokerages have gotten away from,” Mr. Gallagher said. “I love that part of the business because it is at the crux of helping clients reduce their losses and risk. When you look at the pie, the lion's share of costs is losses; and if you focus on adjudicating losses in a better fashion, that is where you can reduce the cost of risk.”

Acquisitions could pick up toward the end of this year, Mr. Evans said, adding that its unlikely Gallagher will complete another Liberty Mutual-type deal in the near future. He said it is likely that Gallagher will continue to make acquisitions of firms that have about $3 million to $10 million in revenue because those seem to “make the most sense” at this time.

“If you see a firm making a lot of $50 million acquisitions, you start to get a little worried because those are the ones that can hurt you if they don't work out,” Mr. Evans said.

Mr. Gallagher said the brokerage will continue to be a valuable asset and provide service to its clients.

“If we just keep doing a good job of putting the right people on business and continue growth through good acquisition, then we will continue to grow,” Mr. Gallagher said.

“Everybody uses a broker because we add value. People need our help year in and year out,” Mr. Gallagher said. “Insurance is the oxygen of the industry.”

Gallagher's stock closed July 9 at $25.34 a share. Its 52-week high was $27 and its 52-week low was $20.55.