In this excerpt from the Sica | Fletcher Leaders & Legends Podcast, the Gallagher chief executive discusses the brokerage’s success in mergers and acquisitions due to its focus on culture and why it remains a public business in the face pressure from private equity.
“You’ve stayed the course, and you’ve been consistent as the day is long,” as Sica | Fletcher partner Al Sica describes it.
Gallagher also considers how current soft market conditions may affect private equity M&A and why he thinks AI won’t replace insurance professionals.
Q
How do you see the competition on the M&A side changing or evolving at all?
A
We just stuck to our knitting. We said, “We’re going to try to find successful businesses run by people that we like, that love this business.” Ninety-five percent to 99% of our due diligence is on culture. We don’t get it right 100% of the time, but I’ll tell you what, our failure rate—you talk to the business school professors, they think I’m lying—our failure rate is less than 5%. When you get [culture] right, good things happen.
Multiples got driven sky-high by private equity money. There was a time when I couldn’t answer the phone that it wasn’t a private equity player trying to talk me into going private. I had my own officers at the same time saying, “We ought to maybe consider this.” And I kept saying, “No. It took us a long time to get ourselves public. That’s where we are, and that’s where we’re going to stay.” And I think that strategy has served us well.
Now, I do think that we’ve got to change, because life is cyclical, and I think you’ve got a lot of question marks now about private debt. You’ve got a lot of question marks about what’s going on with the market itself. We’ve gone through the longest extended hard market ever in the history of the cycles, and we’re now into a soft market, which tends to last a long time.
Private equity’s got five, six, seven, eight years of time frame that they like to work within. I don’t think they can commit to that with their investors anymore. We are leading the way and saying, “Look, multiples got to come down.” And that’s just a fact because we are not in the business of diluting our shareholders.
Q
There’s been a little bit of turmoil recently with AI. Where do you sit right now?
A
AI is absolutely not a threat to the brokerage world, in my opinion, and in particular to Gallagher, and I’ll tell you exactly why. After the big crash [the decrease in public broker stock prices in February after an AI app for purchasing personal insurance was approved for ChatGPT], a colleague went home that night, and everybody’s like, “AI’s going to take over the world.”
So he invented a company, it was I think a florist in Elk Grove Village, Illinois, $2 million, $3 million in sales, eight employees, three trucks. And he asked ChatGPT, “What should I get?” You need comprehensive general liability, and here’s what it does. Oh, by the way, [general liability] doesn’t do your auto liability, so you need an auto form. Now you get the auto form that includes the auto property, but it doesn’t include the property that you need to do with your comprehensive general liability in the package, neither of which covers your workers’ compensation. And that workers’ compensation comes with employers’ liability. Now, we haven’t even talked about cyber or umbrella.
Five pages in, the machine says, “And you better talk to an insurance professional.”
AI already is having a major impact on our, what I would call rote work, giving us time to be more professional in giving advice to clients. And I think to me, what you’re going to see is we’re going to be more efficient, we’re going to be more professional, we’re going to make our clients more knowledgeable. We’re going to be faster, we’re going to be more profitable, and that all works for everybody.
I am not afraid of AI at all.
For the full interview with Pat Gallagher, click here.
