Arthur J. Gallagher & Co. announced the acquisition of Gardner & White, an employee benefits consultant based in Indianapolis specializing in the health care industry. Last week Gallagher announced two other acquisitions, including Michigan-based Eriksen Group and Minnesota-based Unisom. All told, the AUM of Gallagher Retirement Services, headed by industry vet Mike Dicenso, a division of AJ Gallagher, a publicly traded company, grew by $4.5 billion in just over a week, compared with $5.5 billion over the last 12 months. End-of-year deals may be one reason for the rush, but sellers may be concerned about possible capital gains tax increases.
P&C business accounts for two thirds of Gallagher’s revenue, with health and welfare and retirement consulting making up the rest. With $90 billion of retirement AUM, Gallagher is one of the biggest if not the biggest specialty industry group — which also includes SageView, Captrust, 401(k) Advisors and Lockton. There are groups recruiting and supporting plan advisors forming within other organizations, like LPL’s Sheridan Road, PensionMark and RBG, each with a different business model. While some advisors may be looking to cash out, others are looking for greater support in a market where it seems that bigger is better if not essential.
Dicenso explained that advisors sell either for succession planning or because they feel they have hit a wall when it comes to growth that will take more resources and capital than they have access to. Gallagher looks for firms with $1-$10 million in revenue; smaller firms are not worth the effort and larger ones have a hard time conforming to another organization’s business model and culture. Price is three to five times EBITDA, with a three-year earn-out typical. Gallagher prefers that principals stay on and are willing to strategically grow the business, leveraging Gallagher’s client base.
Advisors can continue to go it alone but it’s becoming increasingly harder, especially in the mid and larger markets where size matters and prices are falling. Smaller-market advisors must be able to cross-sell, which takes resources or an affiliation with a larger organization. Leveraging fixed costs and being able to invest in marketing, branding and people is the key to growing a profitable plan advisory business.
Like many other entrepreneurs, some advisors have not planned for retirement since they need to continually invest in their business — especially if it's growing quickly. Taking some money off the table may be appealing.
