Gallagher’s Heath Lambert costs dip 24% in Q3

US broker Arthur J Gallagher’s costs from integrating its 2011 purchase of UK broker Heath Lambert dropped 24% in the third quarter of 2012.

Third-quarter 2012 results show that the continuing Heath Lambert integration caused a $4.2m (£2.6m) hit to Gallagher’s broker segment earnings before interest, tax, depreciation, amortisation and change in acquisition earn-out payables (EBITDAC).

This compares favourably with the $5.5m hit Gallagher’s broker segment took from the integration in the third quarter of 2011.

Of the 2012 $4.2m EBITDAC hit, $2.3m was related to compensation expenses and $1.9m to operating expenses.

For the first nine months of 2012, the Heath Lambert integration hit was $12.3m, up 45% on the $8.5m charge incurred in the first nine months of 2011. But as Heath Lambert was not included in the numbers until May 2011, the nine-month figures are not comparable.

Gallagher said the Heath Lambert integration will continue to lower the EBITDAC of its brokerage segment until integration is completed in 2013.

Group performance

As a whole, Gallagher had a good third quarter. Group net profit was up 32% to $61.7m (Q3 2011: $46.7m) and EBITDAC increased 20% to $127.2m (Q3 2011: $106.4m).

The company’s core brokerage segment’s net profit increased 7% to $49.6m (Q3 $46.5m) and EBITDAC grew 23% to $117.4m (Q3 2011: $95.7m).

Organic commission and fee growth for the quarter was 4%.

Gallagher chief executive J Patrick Gallagher Jr. described the third quarter performance as “strong”.

“The rate environment continues to improve and portions of the economy continue to show improvement,” he said.

“More than ever, our clients rely on us to navigate through the changing and more complex risk environment, and our client-focused professionals are delivering every day.”

For the first nine months of 2012, Gallagher’s group net profit increased 56% to $161.5m (9M 2011: $103.6m).