Arthur J. Gallagher & Co.To Acquire AssuredPartners Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Elyse Greenspan - Wells Fargo Securities - Analyst : My first question is on the synergies, what's the timeframe on the realization of that $160 million? And then I'm assuming the full realization is embedded within the EPS accretion that you outlined with the deal?

Question: Elyse Greenspan - Wells Fargo Securities - Analyst : Okay. And then how much -- are you guys taking on any debt from AssuredPartners in the transaction? And if so, how much?

Question: Elyse Greenspan - Wells Fargo Securities - Analyst : Okay. So no debt. Is there an earn-out on the transaction? And anything you can say about that, just magnitude and time frame that would be associated with it?

Question: Elyse Greenspan - Wells Fargo Securities - Analyst : And then are the AssuredPartners' owners -- I know there's an equity offering here, Doug, but are the AssuredPartners' owners going to taking any Gallagher stock in the deal or they're just fully on being monetizing with this transaction?

Question: Mark Hughes - Truist Securities - Analyst : Could you talk about AssuredPartners -- their kind of level of integration, how their systems compared to yours, also their experience with employee retention.

Question: Mark Hughes - Truist Securities - Analyst : And the other part of that was just employee retention at AssuredPartners.

Question: Mark Hughes - Truist Securities - Analyst : And then -- I appreciate that. One follow-up, the deferred tax asset, what's the timing on your ability to utilize that? Does it -- with your clean energy credits, is there some limitation on how much you can use in aggregate? And then is that taken into account? Is that an NPV of the deferred tax asset that you've disclosed? Or is that the gross deferred tax --

Question: Mike Zaremski - BMO Capital Markets - Analyst : First question, slide 11 on the EBITDA -- adjusted EBITDA margin. It says 30% or greater. If I look at the asterisk it says -- I think it says it's removing historical stock-based comp. I don't think you all do that for your margins. So why are you removing stock-based comp? And just trying to get at will this change -- the Gallagher's perspective EBITDA margin profile?

Question: Mike Zaremski - BMO Capital Markets - Analyst : Yes. So will it change -- you said different definitions then will this deal change Gallagher's EBITDA margin profile materially?

Question: Mike Zaremski - BMO Capital Markets - Analyst : Yes. Just trying to get if this acquisition is going to change your prospective margins going forward.

Question: Mike Zaremski - BMO Capital Markets - Analyst : Okay. Got it. And moving to -- I don't see much on free cash flow in here. I understand that Assured probably had a lot of debt. But I guess just when all is said and done, a year or two from now is will this deal meaningfully change your free cash flow conversion profile just when we look at your Gallagher's free cash flow divided by revenues?

Question: Mike Zaremski - BMO Capital Markets - Analyst : Okay. Okay. That's helpful. Lastly, if I just look at the high level about the integration cost approximately $500 million and the expense synergies of $100 million, just look at that ratio of $500 million over $100 million. it's a much higher ratio than a lot of your peers who have done deals in the past that -- I think their cost savings ratios were more like in the 2 to 3 times range. So probably not apples-to-apples and there's some stock retention awards in here, but is there anything -- maybe there's some conservatism in here? Or anything you'd like to comment on the cost savings from synergies?

Question: Greg Peters - Raymond James & Associates - Analyst : Congratulations on your announcement. I guess we have a couple additional questions. First of all, in your synergies expectations, one of the things you didn't really talk about, at least in your comments was using the offshore centers of excellence that you have, is that part of your process? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 09, 2024 / 1:30PM, AJG.N - Arthur J. Gallagher & Co.To Acquire AssuredPartners

Question: Greg Peters - Raymond James & Associates - Analyst : That's a great follow-up answer, Pat, because that's where I was going to go. Then I know you said this isn't really disruptive to your ongoing tuck-in acquisition pipeline, but maybe you can freshen up that comment with some additional details. There's a lot of -- if we go on your quarterly calls and your management meetings, you talk about this glorious pipeline. And just curious because you're processing this transaction, how it might affect your attitude towards the pipeline that's -- as you look out 12 months?

Question: Greg Peters - Raymond James & Associates - Analyst : I guess the last question is just can you talk a little bit about the process, the bidding process? I guess the reason why I'm asking is as just a couple of weeks ago, we were getting calls from PE shops that we're actually looking at taking a slug of this company. And so just curious how the process evolves and how it wound up with the opportunities you were able to get?

Question: David Montemaden - Evercore ISI - Analyst : Pat, you had mentioned some of the benefits to organic growth from utilizing some of the systems and tools you guys have developed over the years. Could you just remind me how much organic growth has accelerated in your acquired businesses in year two? And if you think that you can get the same sort of uplift in this deal as we look out to 2026 from implementing some of those tools.

Question: David Montemaden - Evercore ISI - Analyst : Great. No, that's helpful to see that. And yes, we had sort of looked at the 6% organic over the last three years. It was a little bit below what you guys have been doing in brokerage. So it's good to hear, it's some things you can do to accelerate that. The other question I had is just on slide 16. It does look like there's some -- you guys are obviously both large brokers who have some overlapping geographies, particularly on the East Coast. How have you guys thought about revenue leakage from this? I know the retention you guys spoke about earlier, but just from like a broader -- having the same end clients and some -- how should we think about potential revenue leakage going forward?

Question: Meyer Shields - Keefe Bruyette & Woods - Analyst : Congratulations.

Question: Meyer Shields - Keefe Bruyette & Woods - Analyst : First question. Just a simple question. Is the AssuredPartners brand going to persist, or is that going away?

Question: Meyer Shields - Keefe Bruyette & Woods - Analyst : Okay. That's very helpful. And second question, when you talk about the revenue synergies just given the Gallagher strategy, does any of that manifest in risk management? Or is that all brokerage?

Question: Meyer Shields - Keefe Bruyette & Woods - Analyst : Okay. And last question, if I can. You talked about how this doesn't impede the ability to do tuck-in acquisitions. Is that even in the short term?

Question: Mike Zaremski - BMO Capital Markets - Analyst : A quick one. So on the slide deck, slide 20, where you kind of break out the revenues. You show contingent revenues on a trailing 12-month basis. 7.9% of the revenue base that I think that's higher than you all in the peer group. Just curious, is there anything in the business mix, that they just have a higher leaning towards contingent? And is that going to change over time?

Question: Mike Zaremski - BMO Capital Markets - Analyst : It's a good -- I'm doing it off the top of my head, and I just see contingents. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 09, 2024 / 1:30PM, AJG.N - Arthur J. Gallagher & Co.To Acquire AssuredPartners

Question: Mike Zaremski - BMO Capital Markets - Analyst : Okay. I can -- it sounds like nothing meaningful.

Question: Mike Zaremski - BMO Capital Markets - Analyst : Yes. So the --

Question: Mike Zaremski - BMO Capital Markets - Analyst : Okay. That's part of your commission rate adequacy comments. And lastly, on the investment income, their investment income ratio is very low compared to peers. And I think that's why you're saying revenue synergies from kind of getting that 1% of revenue ratio up closer to you all. Is that -- am I thinking about that correctly?

Question: Robert Cox - Goldman Sachs - Analyst : Thanks for the discussion on the organic growth. I just wanted to drill in a little bit on the net new business generation profile compared to Gallagher perhaps historically and kind of what you guys think you can do going forward?

Question: Robert Cox - Goldman Sachs - Analyst : Okay. Got it. It seems like a lot more tools at Gallagher. And then I just had a follow-up. I did want to ask about the Employee Benefits business. Is that more a brokerage or consulting? And could you kind of talk about the overlap with Gallagher there? Is that still focused on the middle market?

Question: Andrew Kligerman - TD Cowen - Analyst : So historically, A.J. Gallagher has been pretty awesome at integrating. And when I look at the $160 million of EBITDAC synergies, $100 million of it is expense synergies. So is -- I know you can't give me an exact number, but is that $100 million something that's very conservative? Do you have the potential to do more? How might you do more in expense saves?

Question: Andrew Kligerman - TD Cowen - Analyst : Got it. That was helpful. And then just sort of thinking about the producer profiles of A.J. Gallagher and Assured, what's the average age of producer at Assured versus the average age of a producer at A.J. Gallagher.

Question: Andrew Kligerman - TD Cowen - Analyst : Got it. But that's kind of an important factor because I think, and correct me if I'm wrong, Pat, you attract a younger vintage of producers, people earlier in their career that can really make hay with a long career span.