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Will Arthur J. Gallagher Gain on Baker Tilly?

Arthur J. Gallagher & Co. (AJG) has closed the acquisition of U.K-based Baker Tilly's Employee Benefits Solutions Business, thereby boosting its inorganic growth.

The stock gained 0.3% in the last trading session and closed at $47.23, following the announcement during the trading session. Investors are expected to respond positively to this acquisition, leading to the rise in the stock price.

Arthur J. Gallagher had inked the deal to acquire the assets of Baker Tilly's Employee Benefits Solutions Business this July. The latter generates annualized revenue of approximately $11.5 million, and will thereby boost Arthur J. Gallagher's annual revenue.

Baker Tilly is an independent firm of chartered accountants and business advisers providing expertise services like corporate finance, accounting services, insurance services. Its Employee Benefits Solutions business was previously owned by RSM Tenon and came in its portfolio following the acquisition by Baker Tilly last year

After this acquisition, the employees of Baker Tilly's Employee Benefits Solutions Business are expected to join the existing benefits team of Arthur J. Gallagher. The move will strengthen the insurance broker’s employee benefits solutions business across the U.K.

In the current quarter, other employee solutions benefits businesses acquired by Arthur J. Gallagher are the U.S.-based Foundation Strategies Inc, Utah-based Insurance Point, LLC and Colorado-based Denman Consulting Services.

Arthur J. Gallagher is well known for pursuing acquisitions that help to expand its business globally. While the latest acquisition marks the eight one in the present quarter, the company had made 17 acquisitions in second-quarter 2014 with annualized revenue totaling $497.1 million. The acquisition spree is expected to continue in the coming quarters.

Notably, the company’s liquidity cushions its acquisitions with cash balance up 3.3 times from 2013 end and retained earnings of $596.9 million (up 8.7% from 2013-end).

However, this Zacks Rank #3 (Hold) stock missed the Zacks Consensus Estimate in the second-quarter 2014. The quarterly earnings also declined from the year-ago quarter figure due to higher expenses. Nevertheless, Arthur J. Gallagher has been witnessing estimate upward revisions in the last 30 days on strong fundamentals.

For 2014, the Zacks Consensus Estimate moved north by 2% to $2.51 per share as 4 out of 10 estimates were raised while for 2015, it increased by 1.7% to $2.93 as 4 out of 10 estimates moved higher. The long-term growth of Arthur J. Gallagher is targeted at 14.6%.

Insurance brokers are now increasingly opting for inorganic growth to boost prospects. Notably, Aon plc’s (AON) global risk management business, Aon Risk Solutions acquired a Lima, Peru-based risk and insurance solutions provider, Grana y Asociados last month. In June, Brown & Brown Inc. (BRO) acquired select assets of Gaston & Associates. Another insurer, Marsh & McLennan Agency LLC – a subsidiary of Marsh & McLennan Companies Inc. (MMC) – acquired Senn Dunn Insurance, the largest independent insurance agency in North Carolina.

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