Gallagher can muster $4bn for M&A through 2024, bullish on pipeline

Global broker  Arthur J Gallagher can marshal $4 billion for M&A over the course of the next two years should the pipeline warrant the spend, top company officials have said.

“We are extremely well positioned to fund future tuck-in M&A using just cash and debt,” CFO Douglas Howell said, citing $300 million in cash on hand, “strong” operating cash flows and “potentially a nice bump” from clean energy investments.

“Over the next two years, we can do over $4 billion of M&A without using any stock,” he said. Capacity breaks down to “just under $2 billion” in 2022 and “just over” the mark in 2023.

Gallagher currently has some 35 term sheets signed or in preparation, representing over $200 million in annualised revenues, CEO Patrick Gallagher (pictured) said.  He believes Gallagher typically closes on ca 90% of signed term sheets and about half of the sheets prepared.

“We know all of these will not close, but we believe we will get our fair share,” Gallagher said.

The immediate pipeline looks “a little slower” on Q1 seasonality for deals, but “we are pretty excited about what we are seeing in our pipeline right now,” CFO Howell said.

Valuation multiples “have ticked up a little bit,” but still leave a good gap to Gallagher’s own trading multiples, officials insisted. “If we buy in the 8 to 10x range for a tuck-in, it’s a pretty good run rate for our trading multiple of 15, 16, 17.”

Gallagher completed 18 tuck-in brokerage mergers during Q4 for an estimated $65 million in annualised revenues, the CEO reported.

The integration of Willis Re since the December 2021 closing has not and will not slow the M&A drive, officials believe.

“Integration is well underway and progressing at a good pace,” Gallagher said. “Our combined Gallagher Re team hit the ground running and had a strong finish to the year.”

Gallagher counts a roughly $20 million top-line gain in December on the acquisition. The combined reinsurance operations delivered “a strong January 1” and is “still looking good” to deliver on rough guidance given on the acquisition.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.