In the biggest deal of its history, Arthur J. Gallagher & Co.'s proposed acquisition of the insurance brokerage operations of Australia's Wesfarmer Ltd. is a “coup” for the Itasca, Ill.-based broker, according to Gallagher's top executive.
Under the proposed acquisition, which Gallagher announced Sunday, Gallagher will pay 1.01 billion Australian dollars ($938.5 million) for the Perth, Australia-based brokerage operations of Wesfarmers, a conglomerate that includes supermarkets, department stores, mining, chemicals and other businesses.
The Wesfarmers brokerage operations — with about 1,700 employees in more than 50 offices in Australia, New Zealand and the United Kingdom — generated AU$331.1 million ($307.7 million) in revenue for the year ended June 30, 2013, according to Gallagher. They include OAMPS Insurance Brokers Ltd. in Australia, OAMPS (UK) Ltd. and Crombie Lockwood Ltd. in New Zealand.
The deal is subject to regulatory approval and is expected to close during the second or third quarter of this year, according to a statement issued by Gallagher on Sunday.
Wesfarmers sold its insurance underwriting business to Insurance Group Australia Ltd., according to a statement from Wesfarmers.
In a Monday conference call discussing the proposed acquisition and the company's first-quarter results, Gallagher Chairman, President and CEO J. Patrick Gallagher Jr. called the deal “a coup for our company.”
“They sell right into the middle market,” similar to what Gallagher does in the United States, Mr. Gallagher said. The acquisition will give Gallagher “tremendous scale” in the region, he said, adding, “I think the combined organization will be very attractive to potential partners.”
Industry analysts tended to view the proposed acquisition favorably.
“It's a big deal,” said Mark Dwelle, an insurance analyst at RBC Capital Markets, a unit of RBC Dominion Securities Inc. in Richmond, Va. “It's certainly a significant piece in building out their international franchise.”
“On the whole it's positive,” said Paul Newsome, managing director at investment banking firm Sandler O'Neill & Partners L.P. in Chicago. “There are a lot of moving pieces to this transaction, and it hasn't been funded yet, and that makes a difference. It definitely adds scale and size to Gallagher.”
“When we think of Gallagher, they have international business, but not on the scale of a Marsh or Aon, so this appears to be an opportunistic move,” said James Auden, managing director at Fitch Ratings Inc. in Chicago.
Gallagher has entered into a series of high-profile acquisitions in recent months. Last week, it announced that it had acquired London-based Oval Group of Cos., a brokerage and financial services firm, for £199 million ($331.1 million) in cash. And in September, Gallagher spent about $362 million to acquire the London-based Giles Group of Cos.
Also last week, Gallagher announced that it had entered the New Zealand insurance market by buying Mike Henry Insurance Brokers Ltd. for an undisclosed sum.