AJ Gallagher to Acquire UK’s Giles Group of Companies

September 4, 2013

Arthur J. Gallagher & Co. announced that it has signed an agreement to acquire the Giles Group of Companies, headquartered in London, England. The transaction is subject to regulatory approval and is expected to close in October 2013.

Gallagher’s announcement described Giles as an “independent retail broker in the United Kingdom with over 1,100 employees operating out of 43 offices in England, Scotland, Wales, Northern Ireland, Isle of Man and the Channel Islands.

“Total net consideration is approximately £233 million [$364 million] payable in cash (approximately £237 million [$370 million] in net cash less the value of tax and other assets acquired),” said the announcement.

Gallagher said it “expects to finance the transaction initially using free cash and borrowings on its line of credit. Gallagher expects to repay the line of credit over the following six months principally through the issuance of long-term notes.”

Chairman, President and CEO J. Patrick Gallagher, Jr. said: “We continue to look for outstanding international partners that have a similar growth strategy and operating structure, and this is what we found in Giles. Most importantly, Giles has a team-based sales culture which matches ours.

“With our combined resources, we will be able to offer new and current clients additional and/or expanded sales and service capabilities. Together, we can significantly expand our operations in England and Scotland as well as add operating platforms in Northern Ireland, Wales, Isle of Man and the Channel Islands. We are proud that this outstanding team of professionals will be joining the Gallagher family.”

Giles CEO Brendan McManus commented: “Our team has been really impressed by the Arthur J. Gallagher culture and the level of engagement between the senior teams. It’s a great opportunity to combine two high performing businesses and deliver an even better proposition to our clients.”

The bulletin stressed that the two entities are committed to working together and see a number of benefits from such collaboration. The announcement listed them as follows:
— Significantly expanding Gallagher’s client base in the U.K middle-market;
— Adding significant growth in Gallagher’s underwriting footprint through current underwriting business and increased retail distribution opportunities through broker networks;
— Cross-selling opportunities across the combined network;
— Complementing and expanding specialized niche practice groups;
— Combining strong production talent that builds on Gallagher’s successful sales team platform;
— Driving longer-term operational efficiencies through a consolidated platform;
— Little overlap with Gallagher’s current locations. The Combined Operation

The combined operation will have approximately 70 offices and 3,100 staff in the U.K. Giles’ CEO Brendan McManus will join the AJG International Executive Committee led by David Ross, CEO of Arthur J. Gallagher International.

The announcement also noted that “Giles’ retail commercial clients and networks are expected to generate over £57 million [$89 million] in annualized revenues in 40 offices. They will augment Arthur J. Gallagher’s representation within the United Kingdom and will give Gallagher the scale needed in larger regional markets.

“As part of this transaction this will include two UK broker networks, Westinsure and Compass Broker Services, with a combined membership of over 200 network brokers. These two networks offer a strong national alliance for smaller brokers and bring a new proposition to Arthur J. Gallagher.

“The Giles commercial lines business complements Gallagher’s existing expertise groups. Approximately 58 percent of its business is niche, including transportation, health and social care and professional indemnity.

“Rossborough: The transaction also includes the Rossborough group of companies with annualized revenues of £13 million [$20.3 million]. The operation is based in The Channel Islands and the Isle of Man, and is a general and healthcare insurance broking business.

“Underwriting: Giles’ underwriting unit, consisting of MGAs that provide products for both ‘in house’ and external brokers, is expected to generate over £10 million [$15.61 million] in annualized revenues. This underwriting unit comprises INK Underwriting Agencies Limited, which has an established reputation in the market, and will join up with the existing Gallagher underwriting teams. The combined entity will increase Gallagher’s distribution platform and product range.

“Wholesale: Giles’ wholesale business includes a Lloyd’s broker and a reinsurance business that is expected to generate over $5 million [$7.8 million] in annualized revenues. As the result of this acquisition, this wholesale business will offer additional opportunities to distribute products through Gallagher’s underwriting and distribution teams and increase offerings to the independent brokers. FSJ Broking, the Lloyd’s broker based in the City of London, focuses on motor fleet, high-hazard commercial accounts and non-standard risks.

“Personal Lines: Giles’ personal lines, including high net worth business, are expected to generate over £5 million in annualized revenues. It offers a range of motor, home and personal marine insurance. This operation has its larger centers based in Scotland and Wales. The business has been very successful in growing through cross-selling and the increased scale will give the combined entity a solid market presence and platform for future growth.

In addition Gallagher said the “transaction is expected to generate over £90 million [$140.5 million] in annualized revenue across the five operating units and to generate annualized EBITDAC of over £30 million [$46.85 million] in 2014 (and then over £35 million [$54.65 million] in 2015) before integration costs, which are expected to range between £1.5 million to £2.5 million [$2.34 million and $3.9 million] per quarter through early 2015.

Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Itasca, Illinois, has operations in 20 countries and offers client-service capabilities in more than 140 countries around the world through a network of correspondent brokers and consultants.

Source: Arthur J. Gallagher & Co.

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