By James Thaler

Feb 25 - (The Insurer) - Arthur J Gallagher is closing in on a deal to acquire employee-owned D&O specialist retail broker Woodruff Sawyer, in a transaction expected to be valued at around $1 billion or more, in what would mark the Pat Gallagher-led firm’s latest major acquisition.

According to sources, Gallagher and Woodruff are working to complete a deal and there are not believed to be any other current bidders for the San Francisco, California-based firm.

Sources said that talks between Woodruff and WTW and Brown & Brown progressed further than with other intermediaries, but that those firms are believed to no longer be involved in the process.

However, one source suggested WTW may continue to be an interested party.

The Insurer broke the news earlier on Tuesday that Woodruff was closing on a deal with an unconfirmed buyer, now understood to be Gallagher.

If completed, a deal by Gallagher would continue a remarkable run of acquisitions by the Illinois-based, middle-market brokerage firm, after The Insurer broke the news in December that it was acquiring GTCR-backed AssuredPartners for $13.5 billion.

Among other major transactions the company has sealed in recent years were its $3.3 billion takeover of reinsurance intermediary Willis Re in 2021, as well as a series of acquisitions of insurance brokerage businesses owned by banks in recent years.

Those included deals for Baton Rouge-based Cadence Insurance from Cadence Bank for $904 million and Eastern Bank’s insurance operations for $501 million, both in 2023.

In 2022, Gallagher bought M&T Insurance Services from M&T Bank for $192.5 million.

Gallagher’s acquisition spree has fuelled its rise to becoming the third-largest US brokerage, behind Marsh and Aon. Marsh delivered full-year 2024 revenue of $24.5 billion, versus $15.70 billion for Aon and $11.38 billion for Gallagher.

The deal for AssuredPartners is anticipated to add $2.9 billion of pro forma trailing 12-month revenue for Gallagher and $938 million of pro forma trailing 12-month adjusted Ebidtac.

Gallagher has a nearly $83 billion market capitalisation, up from around $65 billion as recently as December, and has been a steady acquirer, completing 19 deals on average in the last five years including 25 in 2023 and 48 in 2024.

The company was involved in talks to acquire TIH-owned retailer McGriff Insurance Services last year, before being edged out in the process by Marsh.

The firm’s share price has surged by 36% in the past year to $331.91 as of Tuesday afternoon trading and is up by 240% in the last five years.

In December, shortly after the AssuredPartners deal was announced, Gallagher closed an $8.5 billion share offering, selling 30,357,143 shares of common stock to the public at $280.00 per share to fund the deal.

It was not immediately clear if Gallagher would need to raise additional funding to complete its deal for Woodruff.

WOODRUFF ENDING OVER A CENTURY OF INDEPENDENCE

Woodruff, which has been around since 1918 and is employee-owned rather than private equity-backed, ranks among the top-40 U.S. intermediaries, with somewhere in the region of $240 million in annual brokerage revenue for 2023.

The company is largely known as a D&O specialist. There have been challenging conditions in the public D&O market, which has softened dramatically in the last two years, with rate decreases in turn contributing to a downturn in brokerage commissions.

A deal for Woodruff could value the company somewhere in the region of $1.0 billion, based on a business running at an estimated 30% margin on estimated gross brokerage revenue of around $240 million and a 15x multiple for Ebitda of around $30 million.

However, some sources pointed to current market pricing for retail broking businesses is likely to be closer to around 6x revenue, which would point to a deal potentially as large as $1.5 billion.

Having previously resisted acquisition overtures from both strategics and financial sponsors, it was not immediately clear the driving factors behind the firm now pursuing a sale of itself.

The intermediary is thought to have somewhere north of 700 employees on staff, though an exact figure could not immediately be confirmed. Andy Barrengos joined the company in 1996 and has led the company as CEO since 2016.

LARGE-SCALE RETAIL M&A GAINS MOMENTUM

A sale of Woodruff would also add to the growing momentum of major M&A across the insurance distribution landscape, after an acceleration of large-scale deals announced in the last year or so.

In addition to Arthur J Gallagher’s $13.5 billion deal for AssuredPartners, The Insurer broke the news in December 2023 that Aon would be acquiring middle market specialist NFP and was the first to report that TIH Insurance was entertaining offers for retail intermediary McGriff.

McGriff was ultimately sold to Marsh in November in a $7.75 billion deal.

Howden also remains in active deal talks for its long-expected entry into U.S. retail broking, with Boston-based Risk Strategies parent Accession Risk Management Group among the parties with which it is currently engaged.

Meanwhile, in the wholesale space, The Insurer broke the news on Monday that newly-independent wholesaler CRC Group is in active talks to acquire its fellow Stone Point-backed intermediary ARC Excess & Surplus.

CRC’s wholesale rival Ryan Specialty has been especially active in the last two years, having acquired Innovisk Capital Partners, US Assure, Velocity Risk Underwriters, and Ethos’ property and casualty business from Ascot in the last nine months, among others.

Last year saw a slow down in total North American agent and broker M&A deal flow but a pick up in large-scale transactions.

In its most recent report on the sector, Optis Partners predicted further activity in the next 12-24 months involving larger-scale M&A deals.

A spokesperson for Gallagher said the firm does not comment on market speculation. A spokesperson for Woodruff Sawyer has been contacted for comment. WTW declined to comment.