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Gallagher-Heath deal edges closer

AJ Gallagher International and Heath Lambert are in exclusive takeover negotiations as the two sides move closer to finalising the terms, The Insurance Insider understands.

Although the talks are in an advanced state it looks as if the parties may struggle to close the deal before the end of the month as had initially been hoped, according to sources.

The proposed deal was first revealed by The Insurance Insider on 21 February.

A takeover of Heath will provide the AJ Gallagher & Co unit with a readymade network of UK regional officers, as well as offering considerable additional scale.

It will provide a steady stream of retail business, some of which Gallagher will be able to direct towards its newly purchased managing general agency Woodbrook.

Heath's most recently filed accounts show revenues of £93mn, although the broker has £82.7mn of debt on its balance sheet including an unpaid dividend deficit to preference shareholders of £15.5mn.

The same accounts also reveal that Heath fell to a £3.3mn loss to ordinary shareholders in 2009.

Meanwhile, Gallagher has bucked the London market trend. Figures for Gallagher International are not available, but the company's UK arm - which makes up a substantial portion of the segment - doubled its pre-tax profits for 2009 to £8.35mn.

An efficiency programme brought a 22 percent year-on-year reduction in overheads to £47mn and has been key to the broker's improved profitability.

The improved performance has come despite the distortion of one-off gains in 2008 from the sale of Gallagher Re to Aon.

Gallagher has the firepower to make the deal after its parent raised $125mn through a bond issuance on 10 February, noting at the time that it "intends to use the net proceeds of the debt transaction to fund acquisitions".

Gallagher and Heath Lambert declined to comment.

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