Top Insurance Brokers, #3: Arthur J. Gallagher & Co.

J. Patrick Gallagher Jr.

Brokerage revenues in 2023: $9.7 billion
Percentage increase: 15.8%

Arthur J. Gallagher & Co.’s continued appetite for acquisitions has helped it climb the rankings of the world’s largest brokerage firms in 2023. Three major deals finalized last year are expected to significantly expand the firm’s capabilities.

“We had a great year last year,” said J. Patrick Gallagher Jr., chairman and CEO of the brokerage firm. In addition to 51 acquisitions in 2023, Gallagher acquired several business books and recruited producers that he said will help boost revenue even more.

Gallagher’s 2023 brokerage revenue of $9.70 billion was up 15.8% year-on-year. Gallagher overtook rival Willis Towers Watson PLC for the No. 3 spot in Business Insuranceplace in the ranking of the largest brokers in the world.

The brokerage house’s gross revenues last year amounted to $10.07 billion, which is an increase of 17.8% compared to 2022.

Gallagher’s acquisition of BCHR Holdings LP, which does business as Buck, for $660 million in April 2023 “was a transformational transaction for us,” Mr. Gallagher said. “It really expanded our retirement services, benefits and HR consulting. It gave us tremendous scale in those practices, while also taking us global.”

In October, the brokerage paid $510 million for bank-owned Eastern Insurance Group LLC in a deal that Mr. Gallagher called “a classic case of finding the perfect fit.” The deal will allow Gallagher to expand into several areas, including life sciences and hospitality, he said.

In another deal with the bank, Gallagher acquired Cadence Bank’s brokerage unit in November for $904 million. The move will expand Gallagher’s presence in the southern United States, where “we’re already very strong,” Mr. Gallagher said.

In the first quarter of this year, Gallagher recorded 12 acquisitions, resulting in total annual revenue of $69.2 million.

Mr. Gallagher said there was still a rich pool of acquisition targets, but not many with the appeal of the big buys the brokerage made in 2023. “If there are banking opportunities, we’re certainly on the list of people they want to talk to,” he added. “We like that aspect of the business and would probably be very competitive if that opportunity came up.”

Outside the United States, Gallagher is looking at future deals in India, Europe, the Middle East, Africa and Asia, Mr. Gallagher said. In continental Europe, “we’ve had our toes in the water there for 20 years,” he said, and expansion in that part of the world is expected.

Mr. Gallagher said Gallagher does not rely on debt to fund its acquisitions, the way private equity firms often do when competing for deals.

“We don’t have that leverage,” he said. “We have a lot of dry powder, and we’re focused on using that cash to make acquisitions and invest in making the company better. … That divides us into a very, very small group of people with the size, scale, depth of opportunity and money to invest.”

Last year’s acquisitions follow the 2022 purchase of Willis Towers Watson PLC’s reinsurance business, which significantly strengthened Gallagher’s reinsurance brokerage business.

“Basically, there are three major reinsurance brokers in the world, and one of them was the one they took over,” said J. Paul Newsome, managing director of Piper Sandler & Co. in Minneapolis. “It worked,” he added, and the takeover came at a time when reinsurance prices meant higher commissions.

Gallagher’s reinsurance revenue rose to $1.16 billion in 2023 from $1.01 billion in the prior year.

The strong organic growth, which approached 10% in 2023, was better than most of Gallagher’s larger peers, according to C. Gregory Peters, managing director of equity research at Raymond James & Associates Inc. in St. Petersburg, Florida. That’s “a very positive reflection of good, strong momentum in the organization,” he said.

Organic growth is expected to moderate as brokers see a slowdown in insurance rate growth, Mr. Peters said. “It’s not a major driver of organic growth, but it’s not an insignificant component either,” he said.

Gallagher is well-positioned to continue its growth in the middle market, Mr. Newsome said. “It’s a larger market with less concentration of competitors, which has allowed them to grow faster than the companies that dominate the large-account business for a long time,” he said.