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Arthur J. Gallagher & Co. Q3 2023 Earnings Call Transcript


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Participants

Corporate Executives

  • J. Patrick Gallagher, Jr.
    Chairman, President and CEO
  • Douglas Howell
    Corporate Vice President and Chief Financial Officer

Presentation

Operator

Good afternoon, and welcome to Arthur J Gallagher Third Quarter 2023 Earnings Conference Call. [Operator Instructions].

Some of the comments made during this conference call, including answers given in response to questions may constitute forward-looking statements within the meaning of the securities laws. The company does not assume any obligation to update information or forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning forward-looking statements and risk factors sections contained in the company's most recent 10-K, 10-Q and 8-K filings for more details on such risks and uncertainties.

In addition, for reconciliations of the non-GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the Investor Relations section of the company's website.

It is now my pleasure to introduce J Patrick Gallagher Jr, chairman, President and CEO of Arthur J Gallagher & Company. Mr. Gallagher, you may begin.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

Good afternoon, and thank you for joining us for our third quarter 2023 earnings call. On the call with me today is Doug Howell, our CFO as well as the heads of our operating divisions. We had an excellent third quarter. For our combined brokerage and risk management segments we posted 22% growth in revenue, 10.5% organic growth, GAAP earnings per share of $72, adjusted earnings per share of $2.35, up 22% year-over-year. Reported net earnings margin of 15.5%, adjusted EBITDAC margin of 30.8% up 78 basis-points. We also completed 12 mergers, totaling $57 million of estimated annualized revenue. Another great quarter by the team on all measures. Before I dive into more detail about the quarter and our outlook, I want to make a comment regarding the leadership appointments they were also announced this afternoon. Tom Gallagher will assume the role of President and Patrick Gallagher will become CLL both effective January 1, 2024. These appointments are being made to better position us for the next phase of our growth. And before you ask. I have no plans to retire. I will continue to be CEO and Chairman, focused on Gallagher strategy and global expansion.

In their future roles, Tom and Patrick will help me lead organic and merger and acquisition growth initiatives, drive operational improvement and further promote our Bedrock culture across the entire organization. This is the best business on the planet. I love my job and believe we are just getting started. Moving to results on a segment basis, let me give you some more detail on our quarter's performance. Starting with the brokerage segment reported revenue growth was 22%, organic was 9.3%. Acquisition rollover revenues were $153 million. Adjusted EBITDAC growth was 23% and we posted adjusted EBITDAC margin expansion of about 55 basis-points.

Let me walk you around the world and provide some more detailed commentary on our brokerage organic. And just to level-set versus some of our peers, the following figures do not include interest income. Starting with our retail brokerage operations. In our US, PC business underlying organic growth was about 8%. New business production and retention was better than last year. While less non-recurring construction and capital markets business was a bit of a headwind. Our UK PC business posted 7% organic with new business production and retention similar to last year. Our Canadian PC operation was up 10% organically reflecting solid new business and retention and more modest renewal premium increases. Rounding out the retail PC business. Our combined operations in Australia and New Zealand posted 13% organic. Core new business wins remain excellent and renewal premium increases were ahead of third quarter 22 levels.

Our global employee benefit brokerage and consulting business posted organic of 6% with solid health and welfare results and continued strength across many of our retirement and HR consulting practice groups. Shifting to our reinsurance wholesale and specialty businesses. Gallagher reposted 20% organic. Thanks to a strong 71 renewal season. Another outstanding quarter by the team following an excellent first half. Risk placement services, our US wholesale operations posted organic of 7% including a couple of point headwind from lower contingents. Open brokerage organic was 13% and organic, was about 5% in our MGA programs and binding businesses. And finally, UK specialty posted organic of 18% benefiting from outstanding new business production, strong retention and continued firm market conditions.

Next, let me provide some thoughts on the PC insurance pricing environment. Starting with the primary insurance market. Global third quarter renewal premiums, which include both rate and exposure changes were up 10%. That's at the top-end of the 8% to 10% renewal premium change we had been reporting throughout '22 and early '23 and very similar to second-quarter renewal premiums adjusting for business mix.

Renewal premium increases remain broad-based up across all of our major geographies and most product lines. For example property is up more than 20%, general liabilities up about 6%. Workers' comp is up about 2%, umbrella and package are each up about 10%. Overall, the primary market continues to behave rationally, in our view with carriers pushing for weight rate where it's needed to generate an acceptable underwriting profit.

Remember though, our job is brokers is to help our clients find the best coverage, while mitigating price increases. So not all of these premium increases ultimately show-up in our organic. Shifting to the reinsurance market. Following the orderly July first renewal season, all eyes are turning to January renewals. Assuming no major cad events before year end, we believe the property reinsurance market will see adequate capacity continued from pricing rising insured values and increased demand overall. When it comes to casualty, reinsurers appear to be taking a cautious view of risk. With that said, we believe adequate capacity will be available to support increased demand at firmer pricing. Here in the US, our retail and reinsurance teams met with more than 25 of our key US insurance carrier partners at the annual CIAB conference earlier this month. It remains a tough environment for carriers.

Dealing with frequency and severity of weather events, including secondary apparels, pockets of unfavorable prior year development in casualty lines, higher replacement cost social inflation and rising reinsurance costs. So we believe carriers are likely to seek out further, renewal premium increases and to maintain their cautious underwriting posture.

Moving to our customer's business activity, overall continues to be more resilient than headlines would suggest. And we continue to characterize it is strong. During the third quarter, our daily indications showed year-over-year increases in positive midyear policy endorsements in audits. Additionally, the US labor market remains strong, with continued growth in US non-farm payrolls in a wide gap between the amount of job openings and the number of people unemployed and looking for work.

We also just passed the six-month mark of the Buck acquisition and the team is off to a fantastic start. With integration on-track and financial performance in-line with our expectations and. I am most pleased with how the teams have come together to better serve our clients. So I believe our HR consulting retirement and benefits businesses well-positioned heading into the 2024 enrollment period.

So bringing it all together, as we sit here today, we see full-year brokerage organic in the upper eights and pushing towards 9% posting that would be another fantastic year. Let me move on to mergers and acquisitions. We had an active third quarter, completing 12 new tuck-in brokerage mergers, representing about $57 million of estimated annualized revenue. I'd like to thank all of our new partners, for joining us and extend a very warm welcome to our growing Gallagher family of professionals.

We also recently signed definitive agreements to acquire the insurance brokerage operations of Eastern Bank and Cadence Bank with total pro-forma annualized revenue towards $275 million. Building on our success from the 2022 M&T Bank transaction, we are extremely excited about these mergers, and believe these two regional banks have built brokerage businesses that operate and feel a lot like us. And if that isn't exciting enough, we also have a very strong merger pipeline. Excluding these two pending mergers, we have around 45 term sheets signed or being prepared, representing more than $450 million of annualized revenue. And we know all these will ultimately close. But we believe we'll get our fair share.

Moving on to our Risk Management segment, Gallagher Bassett, third quarter organic growth was 17.9%, ahead of September expectations, due to continued growth in claim counts and new business from '22 new business wins. We still expect to grow over these wins by double-digits during the fourth quarter due to our superior client offerings, some smaller new business wins in '23 and continued growth in claim activity.

Third-quarter adjusted EBITDAC margin of 20.4% was strong and in-line with our September expectations. Looking-forward, we see full-year '23 organic above 15% and adjusted EBITDAC margins pushing 20%, and that would be another fantastic year. And I'll conclude with some comments regarding our Bedrock culture. A few weeks ago. I had the pleasure to visit our associates in our India Gallagher Center of Excellence. It was awesome. The CR team in action. Again, the energy, the excitement and relentless pursuit of improvement is thriving among our 10,000 colleagues. It's a huge competitive advantage for us because we can take a process, streamline and standardize it and then move it to our centers of excellence. Once there, the process is refined even further. And then we make the service available to all our geographies. At the same time, we are refining automating deploying robotics and using AI. We are a machine that is driving out rework improving turnaround times and raising our quality.

And remember, we don't outsource these important roles rather these full-time Gallagher employees represent the very best service and support professionals who are passionate about our customers and have a culture of constant improvement, which is the Gallagher way.

Okay, I'll stop now and turn it over to Doug. It was a great quarter. Doug, over to you.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

All right, thanks. Pat, and hello everyone. Today I'll walk-through third quarter organic in margins by segment, make some comments about how we see the fourth-quarter shaping up and provide some early thoughts on full year '24. Then I'll provide some comments on our typical modeling helpers using the CFO commentary document that we posted on our website, and I'll conclude my prepared remarks with a few comments on cash, M&A and capital management.

Okay, let's flip to page 3 of the earnings release. All-in brokerage organic of 9.3% which as a reminder, does not include interest income like some of our peers report. Organic including interest income would be about 12%. A few soundbites, first-in total, we came in a little bit better than we foreshadowed at our September IR Day due to a really strong results from reinsurance in London, specialty. Second, base commission and fee organic was strong at 9.6%. Third supplementals and contingents together up 5% at our IR Day we flagged some softness, mostly related to the amount we fires. Since then we have also seen a very slight uptick in expected insurance carrier. Loss ratios that also had a modest unfavorable impact to organic regardless. 9.3% and total without interest income, 12% with both are fantastic results for the quarter.

One special mentioned. That discuss the global renewal premium increases. We were seeing around 10% this quarter. And on the surface, it might appear this increase a bit lower maybe about a point from what we said in September and also from the second quarter. It's important to note, when we look at our data by line in customer and then adjust for mix, the renewal premium increases for the third quarter are very similar to second quarter. So please don't interpret that there has been any meaningful shift in the market. We're just not seeing that.

Looking ahead to Q4, organic, over the last year, we have reminded, that we have an accounting headwind to overcome. Recall in Q4 '22, we booked a change in estimate related to our 606 deferred revenue accounting. That will now create a more difficult compare. Called out about a point organic headwind. Again, no new news here, but just a reminder as you update your models. Controlling for this, we see fourth quarter underlying organic growth approaching 9%, but the headline might look more like 8%.

If we post that, that would mean full-year brokerage organic in the upper eights pushing towards 9%. Again these percentages do not include the interest income. What a great year that would be. Flip now to page 5 of the earnings release to the Brokerage segment adjusted EBITDAC table, we posted adjusted EBITDAC margin of 32.4% for the quarter, that's up 55 basis-points over third quarter '22 FX-adjusted margin that's great work by the team to-end up a bit better than our September IR Day expectations.

Looking like. Looking at margins like a bridge from Q3 '22 organic gave us 80 points of expansion, incremental interest income gave us 90 basis points. Poland M&A, M&A mostly Buck, which naturally runs at lower margins impacted it by about 65 basis-points. We also made incremental technology investments call that about $7 million in had some continued inflation on T&E, call that about $3 million, which in total used about 50 basis-points.

Follow that bridge and the mass gets you close to that 55 basis-points of FX-adjusted margin expansion in the third quarter. As for our adjusted EBITDAC margin outlook for the fourth quarter, we expect about 40 to 50 basis-points of expansion. And remember that's off of fourth quarter 22 margins recomputed at current FX levels. However, unlike the past few quarters where FX created some noise, we're fortunate that. Now, there's not much impact to consider so much easier to model if we deliver on that for year '23, which show margins expanding 30 basis-points to 40 basis-points or 80 basis-points to 90 basis-points levelizing for the rolling impact of Buck. That would be a terrific year.

Looking ahead to next year, we are just beginning our budgeting process and but our early, very early thinking is that organic we're seeing organic in that 7-9% range. As for margins, we would anticipate seeing to margin expansion, starting at 4% organic growth. And perhaps if we hit 7% call it around 50 basis-points of expansion. And also one other modeling heads-up. Please don't forget first quarter 24 margins will have a slightly tougher year-over-year compare since Buck will still be rolling into our results.

Okay, let's move on to the Risk Management segment and the organic and EBITDAC table on page 5 and 6. A really strong finish to the third quarter 17.9% organic growth and margins at 20.4%. As Pat mentioned, we continue to benefit from higher claim counts, related to the new business wins from the second-half of '22. Looking-forward, we see organic in the fourth quarter around 13% and margins just above 20%. Organic does reflect the lapping of last year's newer large business wins and margins remain terrific. So if we deliver on that full-year organic would be above 15% and margins, pushing 20%, that would be another record year for Gallagher Bassett.

Looking ahead to full-year '24, our early thinking is pointing towards 9% to 11% organic and margins around 20%. Okay, let's turn to page 7 of the earnings release and the Corporate segment shortcut table. In total, adjusted third quarter came in $0.03 better than the midpoint of the range we provided during our September IR Day.

Two reasons, first, lower borrowings on our line-of-credit as Sumit M&A opportunities were pushed into October and November and second lesser FX remeasurement headwinds. Let's move down to the CFO commentary document to page 3. A couple of things versus our September IR Day estimates. You'll see third quarter, amortization expense is better by $7 million, but remember this is non-cash and doesn't impact adjusted EBITDAC nor adjusted EPS. This was simply due to balance sheet true-ups. When we get our third-party M&A valuations. Then you also see depreciation is a touch higher by $2 million, but that was offset by change in acquisition earn-outs, which is lower by $2 million. So no net impact there.

Looking at had, we've updated our fourth quarter numbers and footnotes, so just do a double-check of your models and we will also update this page again during our December IR Day and give you a first look at 2024 numbers.

Flip over to page 4 of the CFO commentary document to the Corporate segment outlook for the fourth quarter. Only real movement in that Q4 interest and banking expenses up a bit reflecting more anticipated borrowing. Moving to page 5. This is the page that shows our tax credit carry-forwards. As of September 30 we have about $670 million available. A nice future cash-flow sweetener that helps fund future M&A.

When you turn to page 6, you'll see the rollover revenue table for third quarter. The rollover revenues for the third quarter were $153 million, that's a little better than our IR Day expectations mostly due notably to one merger that really hit it out of the park during the second-half of September. It really shows you the potential upside mergers can see after joining Gallagher.

Looking-forward, we have included estimated revenues for M&A closed and announced through yesterday. That's important to note these numbers already include expected revenues from Eastern and cadence. We've assumed mid - we've assumed a mid fourth quarter closing date. So please don't double-count. And also, as we always say please don't forget, you need to make a peck for future M&A also. In terms of funding M&A, first available cash on hand at September 30 was around $550 million. Second, our fourth quarter is historically a very strong cash flow quarter. Third, we currently have nothing outstanding on our line-of-credit. So we can use that or do a bond offering. And finally, if we close a lot of the tuck-in M&A pipeline that Pat discussed before year end, we may use a small amount of stock, but call it a couple of $100 million. As we consider these alternatives. We're always being very mindful of maintaining our solid investment-grade rating also. As for 2024, we are currently estimating about $3.5 billion of capacity to fund future M&A using only free-cash and incremental borrowings.

Okay, those are my comments, another fantastic quarter by the team. It's looking like another fantastic year, congratulations to Patrick and Tom on their - on their new roles. We have terrific momentum taking us into 2024, back to you. Pat.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

Okay. I think we're ready for some questions-and-answers. Operator, we open it up.

Questions and Answers

Operator

Thank you. The call is now open for questions. [Operator Instructions].

Our first question comes from the line of Rob Cox with Goldman Sachs. Please proceed with your question.

Robert Cox
Analyst at The Goldman Sachs Group

Hey guys, thanks for the outlook. On the organic growth. For 2024, just curious, you had previously mentioned that you'd didn't think there'd be that much of a difference in sort of the different areas within the business growing at different rates. I'm curious if you have any updated thoughts on how different businesses may perform in 2024 versus 2023.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Rob that. Thanks for that. I think, let us get through the budget Providence here. We'll have more for you at our December IR Day. But right now we're not seeing anything significantly different kind of across the portfolio of operations. But it's going to roll-out somewhere into that 7% to 9% range. As we're looking at it now.

Robert Cox
Analyst at The Goldman Sachs Group

Okay, got it. Thank you. And then just on the 2024 margin expansion of 50 bps, if you could achieve 7%. Just curious on if that includes impacts from investment income or maybe a potential slight uplift from some of these higher-margin acquisitions you've done recently.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Alright, three things in there on that right now the way. I got to that number. Doesn't assume much incremental left from investment income. It does assume a little bit of a drag from one quarter of Buck rolling into our numbers that naturally runs lower margins. But by and large, maybe those two offset each other a little bit and maybe there's a little extra our rolling impact from M&A from Buck. The rest of the M&A that we're planning on. In our outlook for next year comes in pretty close at the same margins that we're at.

Robert Cox
Analyst at The Goldman Sachs Group

Great, thanks for the color.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks Rob.

Operator

Thank you. Our next question is coming from Elyse Greenspan with Wells Fargo. Please state your question.

Elyse Greenspan
Analyst at Wells Fargo & Company

Hi, thanks, good evening. My first question on reinsurance, Pat, you guys said. 20% organic growth in the quarter. That's the strongest you guys have printed since you close that deal obviously Q3 is smaller from a revenue perspective, but. I was hoping, is there more within that number. And then. When you guys are guiding to 7% to 9% next year, what are you assuming, just in terms of the momentum and the growth within that reinsurance business.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

It's a good question. I think as Doug said earlier, we're just in the throes now budgeting and I'd have to say that the reinsurance team has outperformed our expectations. They came aboard and have just continued to do an unbelievable job and that 20% does include new business and great retention, so when. I look-forward I'm not going to comment on rate. I'm not I'm not there yet. I got to get their professional view as we get into the budget, but. I think that the business momentum will be good. I think retention will continue to be very-very strong. So what I tell you that. I think we're going to see 20% organic next year. I don't know is that be awfully hard, but really this is a good business for us. The market there similar to what we're seeing on retail, we are not seeing softening as we said in our prepared remarks. There is capacity, but you're going to pay for it and I don't think that's going to change between 1-1 and 71 next year, so. I think that what you've got is kind of an interesting market. And again, this is, if nothing happens in the cat world. So I'm not trying to walk. I don't have a really good clear answer for you at this point.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah I think. I think I said to Rob. Let's give you more flavor by division in December, as that will be we'll be talking to you again in six-weeks.

Elyse Greenspan
Analyst at Wells Fargo & Company

And then a good problem to have. The results there have been really strong. I know there is an earn-out associated with that transaction. Is that something that you would account for in '25 or has that something that's already been accounted for.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

I think we'll ever. Okay, the way it works is that we'll have to, it gets triggered off for full year '24 revenues because it's heavily skewed towards one-one renewals. I think we'll have a pretty good estimate of what we set here before December, so. I think I'll be able to give you a number on what we think we're going to-end up booking for acquisition earn-out. Now, we adjust that out, but. I think I should have a good number by our December IR Day and then that would be paid out in the first-quarter or second quarter, up '25.

Elyse Greenspan
Analyst at Wells Fargo & Company

Okay, and then the M&A pipeline sounds still pretty robust. You mentioned that some deals were pushed into October and November. Are those. the Eastern and the cadence transactions or are there other transactions that were pushed from a timing perspective that could be forthcoming.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

I would say that it was the more so the Eastern transaction. And it wasn't necessarily [Indecipherable] to file an HSR on that. So really, our early estimates maybe getting it done. In September, might have been a little optimistic on that, but. I wouldn't. There's nothing else that you don't know about let me put it that way.

Elyse Greenspan
Analyst at Wells Fargo & Company

Okay, thank you.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks, Elyse.

Operator

Thank you. Our next question comes from the line of Paul Newsome with Piper Sandler. Please state your question.

J. Paul Newsome
Managing Director and Senior Research Aanalyst at Arthur J. Gallagher & Co.

Good afternoon, and congratulations on the quarter. Thanks for the call everyone.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks Paul.

J. Paul Newsome
Managing Director and Senior Research Aanalyst at Arthur J. Gallagher & Co.

I wanted to ask little bit more about the M&A environment. Is there anything to be read here that this company has big deals are coming out of banks. And maybe just some thoughts if you have any about sort of how the buyers, may be changing. In this environment. I think we've been waiting for shifts in the market, but at least I've been surprised at how through happened or not happened in the last couple of quarters, but love your thoughts on that.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

I'll give you some and Doug can make some comments as well. I do think and we've said this before that some of the competition relative to some of the private-equity stuff is a little bit less robust. There is still plenty of competition. And if you put a nice piece of property out for bids, you're going to get a lot of bids. So there is good competition for these good properties. I can't get into the strategy of the banks as to why they're deciding now is the time to exit. And we've seen that across a broad-base, and. I think it's probably because multiples are at very-very solid high-high levels. And. Whether SmartMoney thinks that those multiples may at some point in time, begin to diminish. I'm not sure, but. we've had incredible success with our friends at M&T. We're very excited about Eastern and cadence. And frankly if there's other banks that are looking in that direction, we're a very good place to look.

In terms of other M&A opportunities. You've got 30,000 agents and brokers across America, a good number of them are still owned and run by baby boomers. They're good businesses. This has been a very robust time for them. The last five years have been outstanding for them. Lot of change going on in our market. An awful lot of data and analytics that they can compete with. Now you have the advent of AI, which is coming on stronger and faster than. I think any of us thought and. I think people look at it and say, maybe it's time to check, who's out there, maybe now is not a bad time for me to look. And when you take a look at our pipeline. We gave you some numbers today. I mean it's just incredibly robust.

J. Paul Newsome
Managing Director and Senior Research Aanalyst at Arthur J. Gallagher & Co.

And then. Completely. Shifting to a different topic if I could, there's been some comments this quarter. I think about the shift back-and-forth between excess lines and especially in the standard carriers, and I was wondering if from your perspective, you're seeing that shift back to the standard carriers really its major from a terms and conditions environment, excluding pricing.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

No we are not. I mean at the stuff that's in the E&S market has gone there for a reason. And that is growing every single month. In terms of 15% to 20% our submissions that RPS are up substantially this year. We measure that every day, frankly. And our submissions into RPFs are wholesaling operation are at an all-time high. Property in particular is a big driving line for sure. And there just is a lack of capacity. And it is getting to. It continues to be. Whoever can tell the best story might just get a quote. So, no, I'm not seeing - and we are not seeing terms and conditions soften while things still stay-in the access market. And we're not seeing business flow-back to the primaries.

J. Paul Newsome
Managing Director and Senior Research Aanalyst at Arthur J. Gallagher & Co.

All right, thanks. Always appreciate to help. I appreciate the help, guys.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks, Paul.

Operator

Thank you. Our next question comes from the line of Greg Peters with Raymond James. Please state your question.

Greg Peters
Managing Director at Arthur J. Gallagher & Co.

Good evening, everyone.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Hey, Greg.

Greg Peters
Managing Director at Arthur J. Gallagher & Co.

Pat, I feel like you have been saying, you feel like you are just getting started for over 20 years now.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

That's true.

Greg Peters
Managing Director at Arthur J. Gallagher & Co.

So. I guess no change there. Can we go back to your comments on - on the bank acquisitions, and I think you you said some of the banks cadence in Eastern are getting solid high multiples for those businesses. I think those were your words and I look at the CFO commentary and it looks like you're inside that you're looking for your multiples are paying or 10 to 11 times EBITDAC. Is that, is that inclusive of cadence in Eastern because it feels like those numbers will multiples for those businesses are a little bit higher.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

Typically what we do use for larger transactions like that we have a couple of - one a year something like that we typically exclude that. The purpose of that disclosure is really showing you what we're seeing in the tuck-ins. The reality is, is we're still seeing great opportunities. We have worth of 10 times, maybe some larger get 1 at 12 some at 10, but there's really there's a there's a ton of tuck-in opportunities that are still realizing there's terrific value in that 10 to 12 range and the reason why is they understand that they have careers inside of Gallagher afterwards, their employees and their producers and themselves have great careers inside the Gallagher. So what a terrific thing. So your business at 10 to 12 times. Come in and work, take on increasing responsibilities, double your your agency your location.

So the reason why we can still be effective buyers at 10 to 12 times is the future opportunity of getting better together. We said it for 20 years since I've been here, when one plus one equal three, four and five, that's what they're seeing. So we continue to to click those off day-in and day-out, kind of in those multiple ranges.

Greg Peters
Managing Director at Arthur J. Gallagher & Co.

Okay, that makes sense. And then on those larger transactions. It doesn't seem like maybe I'm. I don't know the answer. So is there a lot of synergies to be harvested from as you integrate the businesses or are these standalone teams sort of like what you've got with WTW reinsurance operations.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

I think everything. I think what internally cadence. I mean, snap they public. There's no there's very few human synergies to be gained on this is a matter of fact, they do a really great job servicing their customers and selling insurance. But there are efficiencies that can be gained through a common general ledger common agency management system only needing one cyber protocol that runs over your platform. So there are some synergies there. But those are in the $3 million, $4 million, $5 million type numbers not in the $25 million, $30 million or $40 million type numbers. So..

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

The real kicker there Greg is that look at these bigger deals run by banks and this is why we say it very much. Feels like we're buying somebody similar thus. These are these are firms that were rolled-out by the bank. Typically good community people. I've heard three separate outreach from Cadence people in the last two days that I've known in one instance that they came into to kick the tires with us in 1998. And I remember, the guy [Indecipherable], hey, I came with surety, and I remember surety and came with [Indecipherable] I remember [Indecipherable], and I can't tell you how excited we are now. What we bring to them, this cadence could never do is that whole discussion of moving upstream. We can show statistically that our closing rate on bigger deals and I'm not talking risk management huge accounts. I'm just saying the bigger deals that are generating over $125,000 to $150,000 of commission are significantly greater today than they were 5 or 10 years ago. This is what we're giving them the opportunity to go after, their typical agents in these banks that look just like everybody else and now they're going to go out and frankly, they're going to have our tools and they are terrifically excited about it. So that's I think the whole synergy thing, this is not takeout head count. This is turn them on shown what we do, give them the tools and watch a meet the market all-around them.

Greg Peters
Managing Director at Arthur J. Gallagher & Co.

Okay, that makes sense. I guess the final question. I know. It was Paul was trying to get at this, but. Frankly, we're hearing of some stress in some of the PE backed roll-ups, where the combination of higher interest costs and earn-outs are pressuring our free-cash flow. What's your view of some of those smaller entities that might be having problems. Could we see you be interested in some of those properties at some point in time if they should become available.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

Well, here's the thing. First of all, Greg we will look at every single opportunity we can and our first question. Every single time is what's the culture. What was it that went into this group. In most of these there are situations where we didn't succeed in buying something, they bought. Let's talk about that around this table not with them in the room. X, Y, Z didn't sell us why is that. Okay fine. What's left there. And yes I would say that there are some of those that we would be interested in, but we'd have to get through this whole cultural piece. When you chose not to join Gallagher. I'll tell you the one main reason why you chose not to join Gallagher is because you didn't want change.

And our competition has done a very good job of saying, hey, why join Gallagher when I'll give you the money, I'm going to give you the cash keeps some in our returns have been terrific, you'll get a second bite on the apple and you don't need to change and you don't need to change your name. You don't need to change your agency system. And while they have been doing that, we've been build-in powered power, data, analytics, capabilities and vertical strength. They've got none of that and now it's coming to roost with higher interest rates and tougher earn-outs and you got to make do. You got to come through on your promises.

So, yeah, we'd look at them, but we're going to have to fall in love.

Greg Peters
Managing Director at Arthur J. Gallagher & Co.

Thanks for the detail.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks, Greg.

Operator

Thank you. Our next question comes from the line of Mike Zaremski with BMO Capital Markets. Please state your question.

Mike Zaremski
Senior Equity Research Analyst, Managing Director at Arthur J. Gallagher & Co.

Hey, good afternoon. Maybe I missed this, but on the cadence. Deal. Is it am I right looking at the revenue and EBITDA disclosure that cadence has at 36% to 37% margin, which is pretty, pretty great. And then also on the delevers you called out tax benefits and I don't recall you guys calling out tax benefits in the past.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah, all right. First, you're right. I think it might be about 34%, but I think look little over a point or two on that. I think that when it comes to the tax, but I think it's important on these margin. We always get where we get a step-up in basically on smaller deals, but on many larger mergers that the sellers are not willing to allow a step-up in basis. In this case the sellers were willing to. And we paid a little bit - a little bit more cash upfront on it, but $250 million worth of deductions over the next 15 years, the present value that back at 5% or 6% get something that 150, so it really does doesn't impact downward all that much, because I don't know if they met the shield that NOL carry-forwards or something like that, but it benefits us a lot. So we able to achieve that and it's not all that important in many times for, let's say a PE firm that buys a bigger one over trades, because we've got the large interest shields coming off of the higher levels of debt they run their. So, for us to be able to negotiate that benefit and to be able to have a seller that's willing to - to allow that benefit to pass up that makes a big difference. So in this case this is a true win-win for them. They get more cash, we get more cash and it brings our multiple down considerably on it. This is not using our clean-energy credits, we have $670 million of clean-energy credits available, think about that. We will use those over the next few years. It's almost like we have another free cadence coming our way, because of those because of those tax credits. So tax does matter in this case, we think that - that conservative view of that - of that benefit is $157 million.

Mike Zaremski
Senior Equity Research Analyst, Managing Director at Arthur J. Gallagher & Co.

Okay, okay, interesting. Thank you for the explanation on that. And I guess this was probably for this fun question is for Pat and congrats to Thomas and Patrick, on our new appointments. I'm just curious on Pat will these new appointments caused any of your existing managers other than yourself to responsibilities, they didn't previously share.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

There'll be some follow-on promotion sure, there's good opportunities for everybody Gallagher up.

Mike Zaremski
Senior Equity Research Analyst, Managing Director at Arthur J. Gallagher & Co.

So with this proposed well-telegraphed. Or is this risk was this like where these promotions like well-telegraphed like within the firm like kind of over-time or.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

I'm going to ask you, the Gallagher answer. There's not a lot, secret at Gallagher, right. Yes, I would say that these moves been telegraphed over about 20 years.

Mike Zaremski
Senior Equity Research Analyst, Managing Director at Arthur J. Gallagher & Co.

Okay, just making sure. Okay, I'll stop there. Thank you.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

Thanks, Mike.

Operator

Thank you. Our next question comes from the line of Mark Hughes with Truist Securities. Please proceed with your question.

Mark Hughes
Analyst at Truist Securities

Yeah, thank you. On the, could you give any guidance on the Corporate segment profit for 2024, any early thoughts there.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

We have it and can you give me till December. I know you're trying to figure out your '24 models you might want to take what we did this year and just take it by line-by-line and make a slight pick on it to see what you think what what would have happened there. I know it's really difficult to do mark because of FX re-measurement gains. I know we put some acquisition costs through there that can be lumpy. And there's a lot of tax now. Restructured numbers that run-through there as we as we implement tax planning strategy.

I know it's really difficult, but could you just give me till December and I can get back to you.

Mark Hughes
Analyst at Truist Securities

Yeah, yeah.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

We get those every year so.

Mark Hughes
Analyst at Truist Securities

Any thoughts on medical inflation. Just curious to get there. I think there benefits is being helped by a higher healthcare costs for employees, but medical inflation impact on say workers' comp and GL. not.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

It's interesting you should ask because we were talking about that with the Board this week. And yes. We're seeing a lot of pressure on medical costs, full insured renewals at our largest carriers are shown 7.9% increases right now as we speak. When you start to take retentions and you start to get in the stop-loss market, we're seeing average is there closer to 17% to 18%, that's on premium now,,that's not on the underlying costs, but that's because more of the claims are tagging those carriers. So they're not only trying to move away in terms of the low-end of the cost, but also they're having to pay that. So if you take a look at all of it all in, Mark, I'd say that our numbers that we're seeing are about 8% to 9% and that's embedded both in work comp, as well as health insurance across the United States.

Mark Hughes
Analyst at Truist Securities

Thank you.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks, Mark.

Operator

Thank you. Our next question comes from the line of David Motemaden with Evercore ISI. Please state your question.

David Motemaden
Managing Director at Arthur J. Gallagher & Co.

Hey, thanks, good evening. Hi, good evening. I was. I was wondering if you can just help me think through just how much of the organic growth over the last several years and even this quarter is driven by just the macro-environment versus what you guys have been doing behind the scenes to accelerate share gains because it feels like there's been a lot going on to help you guys gain share and that the share gains are accelerating. So I'm just wondering I know it's kind of a big-picture question. But as you guys head into next year and you think about that 7% to 9% organic. I guess how much of that do you think is coming from market-share gains, as you guys continue to execute versus like your rate and exposure improvements.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

Well, let me let me split the question with Doug in this regard. Let me talk about market gains in terms of share gain, and then he can tier at the numbers a bit, but we are seeing and we're measuring this literally every single day, every month we know now where we're producing business. We know for instance that 90% of the time, we compete with somebody, smaller than we are, we know exactly what's happening in our verticals, we have 32 verticals that we were very-very clear on management expectation knowing what's going on, building Products and what have you. That's in the property-casualty arena. We have another seven or eight benefits. And in those verticals, we know that our growth rate is substantially greater than what is in our just general book of business. So internally, we know that we are taking definite share in those verticals and I would probably I'd throw; out a number. Mike, maybe throw a number out on the table of what. Just in terms of the growth rate in the vertical as opposed to general of our new business. The 19% of our new business falls into one of our verticals in the. one of those 19?

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

92.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

92 that's right, I said 19, I apologize. So. Each of those are growing faster than the general book, so value again you've got to look at rate, you got to look at exposure and all that stuff, but when you talk about share, there is absolutely no doubt, you go back to Doug's comment on acquisition can be one plus one equals five because when Gallagher shows up with the relationships and the capabilities of the local broker and brings those relationships together with what we have is capabilities and - and the culture works, we don't have to force sharing on people. The fact that they can pick-up the phone and say I've got a college or university, I've never worked on one before, can somebody help me. We will sworn that opportunity, we will write that college or university, they'll get their fair share. Everybody wins and we're not fighting that as a local entrepreneur who doesn't want to play with the big boys. That's the excitement. So I know that's a long-winded weird way of saying it. We are definitely taking share. To, the numbers Doug I would throw it over to you.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

That 7% organic growth and next year I'd say that half comes from net-new business wins are taking share. I would say, a quarter is coming from exposure units and another quarter is coming from rate, if we at 9%, you probably got a third, third, third in there.

David Motemaden
Managing Director at Arthur J. Gallagher & Co.

Got it, that's really helpful. I appreciate that. And then maybe just a follow-up we've seen obviously the two the cadence and Eastern deals on-top of that M&T bank broker last year or earlier this year. So I guess I'm sort of wondering. As we think about the sustainability of that organic I know you're the preferred provider for I think it was cadence, right. I guess, how do you manage the fact that or the potential that there might be more of like an open process for some of those existing customers. Now that it's not a wholly-owned. I don't know if that's something that you guys have worked through planning or Just maybe help us think through that.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

I would hope you think through it and probably the people from Cadence Bank and say is, maybe talk about this up ahead, but I don't think the bank did much to help them produce insurance like probably hurt their production which is why when you look at some of these deals. The Board goes, where-is the growth, cadence in Eastern, good growth, but the fact is, those people have gone out and scrap for that business around the bank relationship which was of course when they bought those per firms supposed to be the golden nugget in terms of being able to produce business that just isn't true. In fact I think we're going to unleash an opportunity to really grow the topline.

David Motemaden
Managing Director at Arthur J. Gallagher & Co.

Got it, that's really helpful. Thanks.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks, David

Operator

Thank you, our next question comes from the line of Meyer Shields with KBW. Please proceed with your question.

Meyer Shields
Analyst at KVW

Great, thanks two big-picture questions, one, there have been some press about larger insurance brokers getting back into wholesale, would that matter at all to Gallagher.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

Not really. I if you take a look at our wholesale business RPS. We do not mandate inside Gallagher. So it's not 100% Gallagher placements there. We did consolidate down to a smaller number of players and RPS does about 50% of Gallagher's placements. So we're very cognizant of what the world is like out there, but really RPS trades with 15,000 to 18,000 independent agents and RPS does not trade, particularly at all with our three larger competitors. So if they were the ones to choose to come in the back into the market we think it would have virtually no impact on us at all.

Meyer Shields
Analyst at KVW

Okay, that's very helpful. Second question and this relates to what you've been talking about, Pat with the additional resources are being part of Gallagher brings, how rapidly can acquisitions take advantage of that and is something we should factor-in when we're modeling acquired revenues.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

Day, one. And I do mean day one and the team will sworn that opportunity. Now, do they get used to operating that way, have they got the customer teed-up. It takes, it's still a learning curve in all fairness, they'll call and we'll jump on the plane and have a shot at that university, but it will probably be a year or two before landed. So I can't - I can't sit here and go day, one it just ratchets up, but I'll tell you what it does. It gets everybody in that perm excited. It worked Gallagher, helped, you can't believe it. We turn this risk manager on their head. This is really cool, next time around, what's the strategy, what's the methodology. So, the resources are truly available to that team on day-one. Now when I factor into the earn-out some of them take great advantage of it and it really does help, it makes their earn-out. Others, as I said, it's a longer ramp-up speed and it's just a matter of the individual leaders.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Yeah, well, one thing. I would say we I think we actually understates true organic, because we don't consider any new business, net-new business wins by those mergers in the first year that doesn't get counted as capital organic was a $20 million, $30 million more of net-new maybe across across the business every year. I know it might be worth 20 basis-points on our organic growth over the course of the year, so I think it naturally understates it, but I think the point - the point is, like I said on this one just a minute ago, we had a merger partner just crushed us here at the end of September and that doesn't go into organic, but it sure impacts our acquisition revenues that we try to give you that when we do these projections. So look at that. On page six of our CFO commentary. But the point is the great mergers, the ones that come in and hit the ground running, use our resources and capabilities and next thing know over the next two-three four years just hitting it out-of-the park.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

I mean, we've showed you at our IR Day, things like our drive just Gallagher drive. One just one-item. That is so cool to these people. And it's basically the ability to sit with the client, say, people like you buy this. And here is what the lines of insurance are there going to these types of truckers in your area or construction companies or senior living. Here's the layers that they're buying. And by the way you're holding a $10 million liability limit. Most of your competitors are paying 20 or buying $20 million of umbrella. Let me show you the losses we have in our it appears the $10 million. You probably ought to buy the 20, there's reasons that it blows the competition away and our merger partners can't wait to get their hands-on it. That's one thing. And there's a dozen of those.

Meyer Shields
Analyst at KVW

Okay. That was very helpful. Thank you so much.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks, Meyer.

Operator

Thank you. Our last question is coming from Yaron Kinar with Jefferies. Please state your question.

Yaron Kinar
Analyst at Jefferies Financial Group

Thank you. Good afternoon. I apologize. I had some technical difficulties, so. I hope I'm not asking stuff that's already been asked. With regards to Eastern Cadence, some do they have any different seasonal patterns. I think you touched on growth on the margin profile. I'm curious if that margin profile kind of holds true to what you've seen look, already throughout the year.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

No-no, there is no seasonality.

Yaron Kinar
Analyst at Jefferies Financial Group

Okay.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

[Indecipherable] seasonally larger caller, primarily because of our benefits and because of our reinsurance. Our P&C business is fairly steady throughout the year over the four quarters. And I'll make it to 23% or 27% other but we're not getting a wide swings like you do reinsurance and employee benefits.

Yaron Kinar
Analyst at Jefferies Financial Group

Got it and do either of those deals, so any kind of vertical space for that you were looking for [Indecipherable] or is it more of a geographic play. What's the rationale there.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

Like good, yes, this is [Indecipherable], so. I would say both of them are in their geographies are strong, where we are maybe strong in other industries. So in cadence in their perspective, we do a lot of public entity in the Mid-South region and that's not one of their strengths, but they do a lot in-construction and manufacturing so it complements us really-really well. It's one of the reasons we like them so much. Eastern is the same way, if you look at New England. New England is heavily weighted towards life sciences, technology and D&O and they balance that book considerably with a lot of other industry verticals, including construction. So it is very much a complementary business to each of those areas.

Yaron Kinar
Analyst at Jefferies Financial Group

Got it. And then one quick one to end. Corporate expenses were quite high this quarter, were there any one-offs there.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

I think when you look at it, if you look at the adjustment - if you look to on an adjusted basis, there were some tax litigation items when we adjusted that out. On an adjusted basis. It's kind of noisy, comp might be up $304 million. I think we're a little further ahead on our corporate bonus accruals than we would have been in the past and we looked at operating expense it looks it down considerably on an adjusted basis without FX re-measurement gains that you're seeing. So if you're looking on a pre-tax basis on an unadjusted basis that's what you'll see in there, but there's nothing - there's nothing fundamentally underlying our expense structure in the corporate segment.

Yaron Kinar
Analyst at Jefferies Financial Group

Thanks so much.

Douglas Howell
Corporate Vice President and Chief Financial Officer at Arthur J. Gallagher & Co.

Thanks, Yaron.

J. Patrick Gallagher, Jr.
Chairman, President and CEO at Arthur J. Gallagher & Co.

Thank you again everyone for joining us this evening through our 50,000 colleagues across the globe. Thank you. Your hard work this quarter and every quarter. Our operational and financial success is a direct reflection of your efforts. And as pleased as I am with our third quarter performance. I'm even more excited about our future. Future organic prospects, future M&A opportunities and our ability to become more productive and increase quality. Look forward to speaking with the investment community in-person at our IR Day in December. Thank you again, everybody, and have a good evening.

Operator

[Operator Closing Remarks]

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