# Arthur J. Gallagher & Co. (AJG) Financial Model Free Excel 3-statement financial model and company analysis for Arthur J. Gallagher & Co.. - Canonical: https://finamodel.com/companies/arthur-j-gallagher - Industry: Insurance - Downloadable model: Yes - Excel download: https://finamodel.com/company-models/AJG.xlsx ## Model Purpose This model provides a comprehensive equity valuation and M&A capacity analysis for Arthur J. Gallagher & Co., enabling an equity research analyst to forecast organic growth, integrate large-scale acquisitions, and project the resulting impact on adjusted EBITDAC margins and free cash flow generation. ## Company Overview Arthur J. Gallagher & Co. (AJG) is a leading global insurance brokerage, risk management, and human resources consulting firm. The company acts as an intermediary between clients and insurance carriers, helping clients structure property/casualty insurance and employee benefit programmes, while also providing third-party claims administration services. - **Brokerage (87% of 2025 revenues):** Retail and wholesale insurance brokerage, generating revenue primarily through commissions and fees based on premium rates and exposure units. - **Risk Management (13% of 2025 revenues):** Operating primarily under the Gallagher Bassett brand, this segment provides contract claim settlement and administration services for self-insured entities. - **Corporate:** Unallocated corporate expenses, debt service, and clean energy investments (historically Section 45 tax credit plants, though phasing out). Geographically, the company generates approximately 67% of its revenue in the United States and 33% internationally (primarily in the UK, Australia, Canada, and New Zealand). AJG operates an asset-light, highly acquisitive business model, acting as a serial consolidator in the fragmented insurance brokerage space. Its competitive position is strong, ranking among the top four global insurance brokers alongside Marsh & McLennan, Aon, and Willis Towers Watson. Recently, AJG completed transformational M&A, including the 2025 acquisitions of AssuredPartners for $13.8 billion and Woodruff Sawyer for $1.2 billion, significantly expanding its middle-market and international footprint. ## Revenue Deep Dive ### Brokerage Segment - **Segment name:** Brokerage - **Revenue driver formula:** Base Commissions + Supplemental/Contingent Commissions + Fee Revenues. Modelled as: Prior Year Revenue x (1 + Organic Growth Rate) + Acquired Revenue. - **Historical growth rate:** 15-25% total revenue growth (driven heavily by M&A), with organic growth consistently in the 5-8% range. - **Key growth levers and headwinds:** Driven by global property and casualty (P&C) premium pricing cycles (hard vs. soft markets), inflation (which increases insured exposure values), and client retention rates. Headwinds include potential softening in commercial auto or workers' compensation rates. - **Pricing dynamics:** Commissions are typically a percentage of the underlying insurance premium. Supplemental commissions are based on volume, while contingent commissions depend on the profitability of the placed business. - **Revenue recognition notes:** Base commissions are generally recognised at the effective date of the insurance policy. Contingent commissions are recognised when the amount is reasonably estimable. - **Seasonality:** The first and fourth quarters are typically the strongest for the Brokerage segment due to the timing of commercial P&C policy renewals (January 1 and December 31 effective dates). ### Risk Management Segment - **Segment name:** Risk Management - **Revenue driver formula:** Number of Claims Handled x Average Fee per Claim. Modelled as: Prior Year Revenue x (1 + Organic Growth Rate) + Acquired Revenue. - **Historical growth rate:** 8-12% total growth, with 6-9% organic growth. - **Key growth levers and headwinds:** Driven by employment levels (which drive workers' compensation claims), frequency of casualty claims, and the trend of corporations self-insuring. - **Pricing dynamics:** Primarily fee-for-service contracts negotiated on a per-claim or flat-fee basis. - **Revenue recognition notes:** Revenues are recognised over time as the claims administration services are performed. - **Seasonality:** Less seasonal than the Brokerage segment, though extreme weather events can cause short-term spikes in claim volumes. ## Cost Structure ### Variable Costs / COGS AJG is a service business and does not report traditional COGS or Gross Margin. The primary operating expenses are compensation and operating costs. ### Operating Expenses - **Compensation and Operating Expenses:** This is the largest expense category, representing 65-70% of total revenues. It includes salaries, bonuses, commissions paid to producers, and employee benefits. It scales relatively linearly with revenue, though M&A integration can cause temporary spikes. - **Amortisation of Intangible Assets:** Extremely high due to the serial acquisition strategy. Typically runs at 6-9% of revenue but fluctuates based on recent deal volume. - **Depreciation:** Asset-light business; depreciation typically runs at 1-2% of revenue. - **Change in Estimated Acquisition Earnout Payables:** A unique and highly volatile line item. AJG frequently structures acquisitions with earnouts. If an acquired agency performs better than expected, the earnout liability increases, creating a non-cash expense in the current period. - **Integration Costs:** Significant one-time charges related to onboarding large acquisitions like AssuredPartners. ### Margin Profile - **EBITDAC Margin:** AJG uses Adjusted EBITDAC (Earnings Before Interest, Taxes, Depreciation, Amortisation, and Change in estimated acquisition earnout payables) as its primary profitability metric. Adjusted EBITDAC margins typically range from 30% to 32%. - **Net Earnings Margin:** GAAP net margins are much lower, typically 10% to 17%, heavily burdened by non-cash amortisation and earnout adjustments. - **Margin trend:** Expanding gradually due to operating leverage, digitisation initiatives, and the integration of higher-margin acquired entities. ## Balance Sheet Structure - **Total assets:** Approximately $45-55 billion post-2025 acquisitions. - **Key asset categories:** Goodwill and intangible assets dominate the asset base. Fiduciary assets are also highly material. - **Goodwill & intangibles:** Represent over 50% of total assets, reflecting decades of continuous M&A and the recent $13.8 billion AssuredPartners deal. - **Fiduciary Assets and Liabilities:** AJG collects premiums from clients and holds them in trust before remitting them to insurance carriers. These are recorded as Fiduciary Assets (cash and receivables) and Fiduciary Liabilities (premiums payable). They must perfectly offset or closely match. - **Working capital profile:** - Ex-fiduciary working capital is generally negative or neutral. The company collects commissions efficiently. - DSO: 45-55 days. - DPO: 60-70 days. - **PP&E:** Minimal. Consists mostly of leasehold improvements, furniture, and IT equipment. - **Right-of-use assets:** Material due to the global footprint of over 1,000 leased office locations. ## Capital Expenditure & Investment - **Capex as % of revenue:** Very low, typically 1.5% to 2.5% of revenue. - **Maintenance vs. growth split:** Almost entirely maintenance and IT infrastructure upgrades. - **Capitalised software:** Material but manageable, related to internal claims management systems and broker portals. - **M&A pattern:** AJG is a serial acquirer. Historically a "bolt-on" acquirer buying 30-50 small agencies a year, but recently shifted to transformational deals (AssuredPartners, Woodruff Sawyer, Willis Re). - **Typical acquisition multiple:** Historically 8x to 10x EBITDA post-synergies, though larger platform deals command 12x to 15x multiples. ## Debt & Capital Structure - **Total debt:** Significantly elevated following the 2025 acquisitions. AJG issued $5.0 billion in senior notes in 2025. - **Debt/EBITDA ratio:** Target is typically 2.0x to 2.5x, but temporarily spikes above 3.0x following major acquisitions before deleveraging through cash flow. - **Key debt instruments:** Senior unsecured notes, a large revolving credit facility, and term loans. - **Interest rate profile:** Predominantly fixed-rate senior notes, with floating exposure on the revolver. - **Earnout Liabilities:** Act as a form of contingent debt, often totalling over $1 billion on the balance sheet. - **Share repurchase programme:** Generally paused or minimal during periods of heavy M&A; cash is prioritised for acquisitions. - **Dividend policy:** Consistent dividend payer. The Q4 2025 dividend was $0.65 per share ($2.60 annualised), representing a yield of approximately 1.2% to 1.5%. ## Cash Flow Characteristics - **Operating cash flow conversion:** Very strong. OCF typically exceeds Net Income by 1.5x to 2.0x due to massive non-cash amortisation and earnout charges. - **Free cash flow margin:** FCF (OCF minus Capex) typically runs at 15% to 20% of revenue. - **Major non-cash items:** Amortisation of intangibles, depreciation, stock-based compensation, and changes in earnout payables. - **Working capital cash flow impact:** Fiduciary funds can cause massive swings in operating cash flow depending on the timing of premium collections and remittances at quarter-end. - **Cash tax rate:** Generally tracks closely to the effective tax rate, though historically benefited from Section 45 clean energy tax credits. ## Sheet Structure 1. **Assumptions:** Hardcoded inputs for organic growth, M&A spend, margins, tax rates, and capital allocation. 2. **Scenarios:** Base, Bull, and Bear cases for P&C pricing cycles and M&A integration success. 3. **Income Statement:** Consolidated GAAP P&L mirroring the 10-K. 4. **Segment Revenue & EBITDAC:** Detailed build for Brokerage, Risk Management, and Corporate segments. Must include the bridge from GAAP Net Earnings to Adjusted EBITDAC. 5. **M&A & Intangibles Schedule:** Roll-forward of acquired revenue, purchase price allocation, goodwill creation, and intangible amortisation. 6. **Earnout Schedule:** Roll-forward of estimated acquisition earnout payables, projecting settlements and non-cash P&L adjustments. 7. **Balance Sheet:** Standard GAAP balance sheet, explicitly separating Fiduciary Assets and Fiduciary Liabilities. 8. **Cash Flow Statement:** Indirect method, heavily detailing the add-backs for amortisation and earnout changes. 9. **Debt Schedule:** Tranche-by-tranche build of senior notes and revolver, calculating interest expense. 10. **Working Capital:** Standard NWC build plus Fiduciary funds tracking. 11. **DCF Valuation:** Unlevered free cash flow build, WACC calculation, and terminal value. 12. **Outputs & Charts:** Summary dashboard of adjusted EPS, EBITDAC margins, and leverage ratios. ## Key Financial Relationships 1. **Brokerage Revenue** = Brokerage Prior Year Revenue x (1 + Brokerage Organic Growth) + Brokerage Acquired Revenue. 2. **Risk Management Revenue** = Risk Management Prior Year Revenue x (1 + Risk Management Organic Growth) + Risk Management Acquired Revenue. 3. **Total Adjusted Revenue** = Brokerage Revenue + Risk Management Revenue + Corporate Revenue. 4. **Brokerage Compensation Expense** = Brokerage Revenue x Brokerage Compensation Ratio (historically ~55%). 5. **Brokerage Operating Expense** = Brokerage Revenue x Brokerage Operating Expense Ratio (historically ~15%). 6. **Segment Adjusted EBITDAC** = Segment Revenue - Segment Compensation Expense - Segment Operating Expense. 7. **Consolidated Adjusted EBITDAC** = Brokerage Adjusted EBITDAC + Risk Management Adjusted EBITDAC - Corporate Adjusted EBITDAC. 8. **GAAP Net Earnings** = Consolidated Adjusted EBITDAC - Depreciation - Amortisation - Change in Earnout Payables - Interest Expense - Provision for Income Taxes - Integration Costs. 9. **Intangible Amortisation** = Prior Year Intangibles x Blended Amortisation Rate + (Current Year M&A Spend x % Allocated to Intangibles) / Useful Life. 10. **Fiduciary Assets** = Fiduciary Liabilities (modelled to match exactly or maintain a historical ratio of 1.0x). 11. **Adjusted EPS** = (Adjusted EBITDAC - Depreciation - Interest Expense - Adjusted Taxes) / Diluted Shares Outstanding. ## Cross-Sheet Dependencies - The **M&A & Intangibles Schedule** is the critical engine of this model. It feeds Acquired Revenue into the **Segment Revenue** sheet, Amortisation into the **Income Statement**, Goodwill into the **Balance Sheet**, and cash paid for acquisitions into the **Cash Flow Statement**. - The **Earnout Schedule** depends on the M&A schedule for new earnout creation, feeds the Change in Earnout Payables to the **Income Statement**, and sends cash settlement outflows to the **Cash Flow Statement**. - The **Debt Schedule** is driven by the funding shortfall in the **Cash Flow Statement** when M&A spend exceeds internally generated free cash flow. - Circularity risk exists between the **Debt Schedule** (interest expense), **Income Statement** (net income), and **Cash Flow Statement** (cash available for debt paydown). ## Sign Convention - Revenues, Assets, and Equity are positive. - Expenses are entered as positive numbers in their respective build schedules (e.g., Compensation Expense) but subtracted in the Income Statement and EBITDAC calculations. - Cash outflows (Capex, Dividends, M&A spend) are negative on the Cash Flow Statement. - Debt paydowns are negative; debt issuances are positive. ## Things Most Likely to Go Wrong 1. **Ignoring the Earnout Line:** The "Change in estimated acquisition earnout payables" is a massive non-cash expense that distorts GAAP earnings. Failing to add this back will result in a severely understated valuation. 2. **Fiduciary Funds Mismatch:** Fiduciary assets and liabilities must move in tandem. If the model grows them at different rates, the balance sheet will break and cash flow will be wildly distorted. 3. **Double Counting M&A Revenue:** Ensure that acquired revenue is only added to the base for one year before it becomes part of the "Prior Year Revenue" base for organic growth calculations. 4. **Underestimating Amortisation:** With the $13.8 billion AssuredPartners acquisition, intangible amortisation will spike massively in 2026. Applying historical amortisation margins will understate this expense. 5. **Confusing GAAP and Adjusted Margins:** AJG reports Adjusted EBITDAC margins of ~31%, but GAAP operating margins are much lower. Do not apply the 31% margin to calculate GAAP operating income. 6. **Share Count Dilution:** AJG issued $8.5 billion in equity in 2025 to fund AssuredPartners. Using the 2024 share count will result in a massive overstatement of EPS. 7. **Clean Energy Run-off:** The Corporate segment historically generated net earnings from Section 45 tax credit investments. These are phasing out. Do not project historical corporate segment profits forward indefinitely. 8. **Integration Costs:** Large deals require significant one-time integration expenses. These must be modelled as cash expenses but added back for Adjusted EBITDAC purposes. ## Validation Checks 1. **Adjusted EBITDAC Margin:** Should remain tightly bound between 30.0% and 32.5%. Flag if it expands beyond 33% without a clear structural reason. 2. **Organic Growth:** Brokerage organic growth should be in the 4% to 8% range. Flag if it exceeds 10% in a non-inflationary environment. 3. **Fiduciary Match:** Fiduciary Assets minus Fiduciary Liabilities should equal approximately zero in all forecast periods. 4. **Debt to EBITDAC:** Gross Debt / Adjusted EBITDAC should peak around 3.0x post-AssuredPartners and deleverage towards 2.0x-2.5x over the forecast period. 5. **OCF to Net Income:** Operating Cash Flow should consistently be 1.5x to 2.0x GAAP Net Income due to heavy amortisation add-backs. 6. **Effective Tax Rate:** Should normalise around 23% to 25% as clean energy tax credits phase out. 7. **Dividend Payout Ratio:** Dividends per share should represent approximately 25% to 35% of Adjusted EPS. ## Key Assumptions (Default Values) | Assumption | Default Value | Unit | Rationale | |---|---|---|---| | Brokerage Organic Growth | 6.0 | % | Blended average of recent historical performance and management guidance. | | Risk Management Organic Growth | 7.0 | % | Consistent with historical mid-single-digit growth in claims administration. | | Brokerage Adjusted EBITDAC Margin | 32.0 | % | Reflects scale benefits and recent historical averages. | | Risk Management Adjusted EBITDAC Margin | 20.0 | % | Structurally lower margin business than brokerage. | | Annual Bolt-on M&A Spend | 1,500 | $ Millions | Normalised run-rate for bolt-on acquisitions excluding mega-deals. | | Acquired Revenue Multiple | 3.5 | x | Typical price-to-revenue multiple paid for smaller brokerage targets. | | Intangible Asset Useful Life | 12 | Years | Standard straight-line amortisation period for acquired customer lists. | | Capex as % of Revenue | 2.0 | % | Asset-light business model requires minimal capital expenditure. | | Effective Tax Rate | 24.5 | % | Normalised global tax rate post-Section 45 credit phase-out. | | Diluted Share Count | 257.1 | Millions | Actual share count as of January 2026 following the AssuredPartners equity raise. | | Annual Dividend per Share | 2.60 | $ | Annualised based on the Q4 2025 declared dividend of $0.65 per quarter. | | Cost of Debt | 5.5 | % | Weighted average interest rate on recent senior note issuances. | | WACC | 8.0 | % | Standard discount rate for large-cap, stable cash-flowing insurance brokers. | | Terminal Growth Rate | 3.0 | % | Aligns with long-term global GDP and insurance premium growth. | ## Data Sources & Benchmarks - **SEC Filings:** AJG Investor Relations website (investor.ajg.com) for the 2025 10-K, 10-Qs, and 8-Ks. - **Peers for Benchmarking:** Marsh & McLennan (MMC), Aon plc (AON), Willis Towers Watson (WTW), Brown & Brown (BRO). - **Industry Data:** Business Insurance magazine (for global broker rankings), CIAB (Council of Insurance Agents & Brokers) for quarterly commercial P&C pricing surveys. - **Consensus Estimates:** FactSet or Bloomberg for forward-looking EPS and EBITDAC estimates. - **Macro Indicators:** Global GDP growth, inflation indices (CPI), and employment data (drives workers' compensation exposure). ## Sources - Arthur J. Gallagher & Co. Q4 2025 Earnings Release and Financial Results (January 29, 2026). - Arthur J. Gallagher & Co. 2025 Annual Report on Form 10-K. - Arthur J. Gallagher & Co. Investor Presentation (November 2025 / February 2026). - Arthur J. Gallagher & Co. Q4 2024 Earnings Release (January 30, 2025). --- ## Frequently asked questions ### What does Arthur J. Gallagher & Co. do? Arthur J. Gallagher & Co. (AJG) is a leading global insurance brokerage, risk management, and human resources consulting firm. The company acts as an intermediary between clients and insurance carriers, also providing third-party claims administration services. ### How does Arthur J. Gallagher & Co. generate revenue? AJG generates most of its revenue, 87% of 2025 revenues, through its Brokerage segment via commissions and fees based on premium rates and exposure units. The remaining 13% comes from its Risk Management segment, which provides contract claim settlement and administration services for self-insured entities. ### What is Arthur J. Gallagher & Co.'s capital expenditure strategy? Arthur J. Gallagher & Co. maintains a very low capital expenditure profile, typically ranging from 1.5% to 2.5% of revenue, primarily for maintenance and IT infrastructure upgrades. The company's growth strategy heavily relies on M&A, acting as a serial consolidator in the fragmented insurance industry. ### What are the key assets on Arthur J. Gallagher & Co.'s balance sheet? Goodwill and intangible assets represent over 50% of Arthur J. Gallagher & Co.'s total assets, reflecting its decades of continuous M&A activity. Fiduciary assets and liabilities are also highly material, representing premiums collected from clients and held in trust before remittance to insurance carriers. ### Can I download an Excel financial model for Arthur J. Gallagher & Co.? Yes, an Excel financial model for Arthur J. Gallagher & Co. is available for download, offering a comprehensive equity valuation and M&A capacity analysis. This model enables forecasting of organic growth, integration of large-scale acquisitions, and projection of their impact on adjusted EBITDAC margins and free cash flow generation. ### What is Arthur J. Gallagher & Co.'s geographic revenue distribution? Arthur J. Gallagher & Co. generates approximately 67% of its revenue within the United States. The remaining 33% comes from international markets, primarily including the UK, Australia, Canada, and New Zealand. [Interactive forecast calculator](https://finamodel.com/companies/arthur-j-gallagher/forecast)