Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Arthur J. Gallagher & Co. | d729936d8k.htm |
| EX-2.1 - EX-2.1 - Arthur J. Gallagher & Co. | d729936dex21.htm |
| EX-99.1 - EX-99.1 - Arthur J. Gallagher & Co. | d729936dex991.htm |
 ARTHUR
J. GALLAGHER & CO. Acquisition of
Canadian Insurance
Broker Noraxis
Conference Call
May 20, 2014 8:00 am CST
Exhibit 99.2 |
 Information Regarding Forward-Looking Statements
2
This press release contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. The words “anticipates,”
“believes,” “contemplates,” “see,” “should,” “could,”
“estimates,” “expects,” “intends,” “plans” and variations
thereof and similar expressions, are intended to identify forward-looking statements.
Examples of forward-looking statements include, but are not limited to, statements
regarding integration activities, future revenue and earnings impact, the size and status of the
combined organization, the impact on our ability to attract and retain producers and leaders within
the organization, cross-selling and expense saving opportunities, the ability of the
combined business to continue to attract, execute and integrate future bolt-on
acquisitions, expected levels of growth within the acquired business, our expectation regarding
future platform acquisitions, drivers of organic growth and anticipated future results or
performance of any segment or the Company as a whole.
Important factors that could cause actual results to differ materially from those in the
forward-looking statements include changes in worldwide and national economic conditions
(including an economic downturn and uncertainty regarding the Euro zone), changes in premium
rates and in insurance markets generally, changes in the insurance brokerage industry’s
competitive landscape, unexpected acquisition opportunities, unexpected regulatory changes, and
the difficulties inherent in combining the cultures and systems of different companies. Please refer to
Gallagher’s filings with the SEC; including Item 1A, “Risk Factors,” of its Annual Report on
Form 10-K for the fiscal year ended December 31, 2013, and the prospectus supplement filed on
April 11, 2014 for a more detailed discussion of these and other factors that could impact its
forward-looking statements. |
 Information Regarding Non-GAAP Measures
This press release refers to EBITDAC, a measure not in accordance with, or an
alternative to, the GAAP information provided herein. EBITDAC is
defined as
earnings from continuing operations before interest, income taxes, depreciation,
amortization and the change in estimated acquisition earn out payables.
Gallagher believes EBITDAC provides a meaningful representation of its
operating performance and improves the comparability of results between
periods by eliminating the impact of certain items that have a high degree
of variability. The
most
directly
comparable
GAAP
measure
is
net
earnings.
Please
see
“4
th
Qrtr
2013
Reconciliation of Non-GAAP Measures and Supplemental Quarterly Financial
Data” on Gallagher’s website at
www.ajg.com under “Investor Relations”
for the purpose
and an example of reconciliations of this measure.
3 |
 About The Noraxis
Group 4
Business Overview
•
Founded by RSA Canada, Noraxis has become one of Canada’s largest and
fastest growing insurance brokers.
•
Provides commercial lines, personal lines and employee benefits on a retail
basis and has targeted specialty niches in each operating unit, including
mining, energy, real estate, transportation, marine, media and condominiums.
•
Located throughout Canada in Alberta, Manitoba, New Brunswick, Nova Scotia
and Ontario, the group has in excess of 650 employees and operates under
several different brands: Renfrew, Ranger, BF&G, CG&B, Stevenson
& Hunt
and Atrens Counsel.
•
Noraxis’
revenues were approximately C$125 million in 2013.
•
Revenues from Gallagher’s existing Canadian brokerage operations were
approximately C$28 million in 2013. |
 5
Noraxis and Gallagher Locations
AJG: 8 offices across 4 provinces
Noraxis: 23 offices across 5 provinces
Province
Revenues
(Approximate)
Ontario
C$77 million
Alberta
22 million
Nova Scotia
9 million
New Brunswick
4 million
Manitoba
13
million
Total
C$125 million
2013 Noraxis |
 About The Noraxis Group
Commercial Lines
Personal Lines
Employee Benefits
Commercial Lines 2013
Commissions
Personal Lines 2013
Commissions
Employee Benefits 2013
Commissions
6
•
Generated approximately C$83 million of revenues
by brokering nearly 40,000 policies in 2013.
•
Focused on middle-market clients and targeted
industry niches.
•
Generated approximately C$17 million of revenues in
2013.
•
Vast majority of the revenue generated in Ontario
with opportunity to expand into other territories.
•
Focused on middle-market and high-net-worth
clients.
•
Generated approximately C$25 million of revenues
by brokering over 60,000 policies in 2013. |
 Transaction Rationale
Country and
Market
Noraxis Business
•
Canada
is
the
10
th
largest
economy
and
has
the
8
th
highest
per
capita
income
in
the
world.
Trends
suggest
that
Canadian
commercial
insurance
market
will
outpace
Canadian GDP in growth.
•
Provides
significant
national
platform
covering
5
provinces
with
the
ability
to
write
business across the country and attract potential production talent and acquisition
partners.
•
Establishes
scale and positions Gallagher as one of the largest national insurance
brokers in Canada, a growing economy with a stable political landscape that has
been a target expansion territory.
•
Rates are expected to increase due to carrier underwriting performance in 2013
resulting from CAT events.
•
Full service retail brokerage with strong focus on commercial lines, personal lines
and employee benefits across Canada with targeted specialty niches.
•
Maintains strong and diversified carrier relationships with consistent commission
rates.
•
Managing General Agent (MGA) business placed through other wholesalers and third
party brokers. Significant opportunity to deploy Gallagher’s MGA and MGU
models to capture this revenue.
7 |
 Transaction Rationale
Clients
Leadership
•
Well-established, experienced and entrepreneurial management team with an
average of 27 years of industry experience.
•
Strong
sales
based
culture
built
on
integrity
with
the
clients’
best
interests
at
the
forefront of the business.
•
Senior management team consists of highly motivated professionals orientated
towards sales and client service. This is reflected in the group's culture.
•
Increases size and strength of Gallagher’s management team in Canada and
provides future career opportunities for Noraxis leadership.
•
Strong
retention
rates
of
approximately 90% across
the
business.
No
customer
exceeds 1% of consolidated net commissions and fees.
•
Six of the top ten clients have relationships for 10 years or more demonstrating the
ability to retain clients.
•
Many
clients
are
connected
to
the
commercial
client
base
through
cross-selling.
There are more cross-selling opportunities for additional products such as
employee benefits.
•
The combined scale, national brand and expertise will allow producers to target and
secure larger corporate clients.
8 |
 Transaction Rationale
Niches
Operations
•
Gallagher
will
bring
new
expertise
in
certain
niches
(e.g.
real
estate
and
condominiums) and will provide the platform for building out other specialties such
as professional indemnities/financial lines where we have a strong market
position. •
Provides the platform to expand our high end specialty business (e.g. mining and
energy).
•
Noraxis Energy practice complements the Gallagher Energy practice in Calgary
which is one of the fastest growing businesses for Gallagher.
•
Gallagher can offer significant defined contribution consulting scheme capabilities
to new and existing clients that want more sophisticated employee benefits
services. •
Opportunity to realize material savings by centralizing back office operations and
integrating the existing Gallagher Canadian business into Noraxis.
•
By
creating
one
operating
platform
for
the
combined
business,
it
will
operate
in
a
more streamlined and efficient manner and provide a good foundation to build
upon. •
Large personal lines business presents a robust opportunity to increase revenue by
applying Gallagher’s e-commerce capabilities to increase efficiency
and profitability. 9 |
 Valuation Summary
10
Accretive to Shareholders of $0.07 per share in 2015.
C$
US$
(1)
Cash price paid to sellers
435.5
$
400.3
$
Less net assets acquired
(13.9)
(12.8)
Net Consideration
421.6
$
387.5
$
EBITDAC acquired before Synergies (2015 expected)
37.3
$
34.3
$
Synergies:
Rent, systems, technology and licensing costs and other consumables
6.8
6.2
EBITDAC from revenue uplifts
1.3
1.2
Annualized EBITDAC acquired (2015 expected)
(2)
45.4
$
41.7
$
EBITDAC multiple paid to acquire
9.3x
Equivalent multiple assuming 17% tax rate
(3)
8.2x
AJG's 87.1%
interest
(1) Assumes exchange rate of C$/US$ of .9191
(3) Gallagher anticipates that the combination of foreign tax credits and the
ability to generate and use more tax credits from its clean energy
investments will result in a tax shield on a GAAP basis and a cash basis
which should generate an addtional $.03 per share of accretion. (2) Excludes
expected integration costs of C$2 to C$3 million per quarter through 2015. |
 For
Additional Information: Marsha Akin
Director –
Investor Relations
Marsha_Akin@ajg.com
Phone: 630-285-3501 |