10-KPeriod: FY2014

Arthur J. Gallagher & Co. Annual Report, Year Ended Dec 31, 2014

Filed February 13, 2015For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported strong performance for the fiscal year ended December 31, 2014, driven by significant growth in its brokerage and risk management segments. The company benefited from a robust acquisition strategy, successfully integrating numerous acquisitions, including large transactions like Oval Group, Crombie/OAMPS, and Noraxis Capital Corporation. These acquisitions substantially expanded AJG's international presence, particularly in the UK and Australia, contributing significantly to its revenue growth. The company also reported positive organic growth across its core segments, indicating the health of its existing operations. A notable contributor to its corporate segment and overall profitability was its clean energy investments, which generated substantial earnings and tax credits. AJG's financial results demonstrate an increase in total revenues, driven by both acquisitions and organic growth. The company maintained expense discipline while investing in growth initiatives. The balance sheet reflects substantial growth in assets, including goodwill and intangible assets, due to the aggressive acquisition strategy. AJG's management expressed optimism about future prospects, anticipating continued expansion through strategic acquisitions and organic initiatives, supported by a strong liquidity position and access to capital markets.

Financial Statements
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Key Highlights

  • 1Total revenues increased significantly by 30% to $4.626.5 million in 2014, driven by a strong acquisition strategy and organic growth.
  • 2The brokerage segment, accounting for 63% of revenues, saw a 36% increase in total revenues, boosted by 15 acquisitions completed in Q4 2014 and 60 for the full year, with annualized revenues of $761.2 million.
  • 3The risk management segment reported a 9% increase in total revenues, with organic fees growing by 9.5%.
  • 4Clean energy investments contributed $104.6 million to net earnings in 2014, with an anticipated $90-$110 million contribution in 2015.
  • 5The company completed three major acquisitions in 2014: Oval Group, Crombie/OAMPS, and Noraxis Capital Corporation, with combined annualized revenues of $761.2 million.
  • 6AJG's international operations expanded significantly, with international revenue constituting 32% of total brokerage and risk management segment revenues in 2014, up from 23% in 2013.
  • 7Diluted earnings per share increased to $1.97 in 2014 from $2.06 in 2013, with adjusted diluted EPS showing a 21% increase to $2.41, reflecting the impact of acquisition-related costs.

Frequently Asked Questions

The primary driver of Arthur J. Gallagher & Co.'s revenue growth in 2014 was its robust acquisition strategy, which included the successful integration of large acquisitions such as Oval Group, Crombie/OAMPS, and Noraxis Capital Corporation. This, combined with positive organic growth in its brokerage and risk management segments, led to a significant increase in total revenues.

Arthur J. Gallagher & Co.'s clean energy investments, primarily related to clean coal production plants qualifying for IRC Section 45 tax credits, significantly contributed to its financial performance. In 2014, these investments generated $104.6 million in net earnings and are expected to contribute between $90 million and $110 million in 2015. These tax credits also reduce the company's overall tax liabilities.

Arthur J. Gallagher & Co. is actively expanding its international operations through both strategic acquisitions and organic growth. In 2014, international operations accounted for 32% of the combined brokerage and risk management segment revenues, up from 23% in 2013, indicating a successful expansion into key markets like the UK and Australia.

Key expenses impacting profitability in 2014 included compensation expenses, which rose due to increased headcount from acquisitions and salary/incentive increases, and operating expenses. Additionally, acquisition integration costs, related to assimilating newly acquired businesses, also presented a significant cost factor. However, the company's adjusted EBITDAC showed strong growth, indicating that underlying operational profitability improved.