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Good afternoon, and welcome to Arthur J. Gallagher & Co.'s Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities laws. The company does not assume any obligation to update information or forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning forward-looking statements and Risk Factors sections contained in the company's most recent 10-K, 10-Q and 8-K filings for more details on such risks and uncertainties. In addition, for reconciliations of the non-GAAP measures discussed on this call as well as other information regarding these measures, please refer to the earnings release and other materials in the Investor Relations section of the company's website. It is now my pleasure to introduce Patrick Gallagher, Jr., Chairman, President and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.

Good afternoon. Thank you for joining us for our third quarter '23 earnings call. On the call with me today is Doug Howell, our CFO, as well as the heads of our operating divisions. We had an excellent third quarter. For our combined brokerage and risk management segments, we posted 22% growth in revenue, 10.5% organic growth; GAAP earnings per share of $1.72, adjusted earnings per share of $2.35, up 22% year-over-year, reported net earnings margin of 15.5%, adjusted EBITDAC margin of 30.8%, up 78 basis points. We also completed 12 mergers totaling $57 million of estimated annualized revenue. Another great quarter by the team on all measures. Before I dive into more detail about the quarter and our outlook, I want to make a comment regarding the leadership appointments that were also announced this afternoon. Tom Gallagher will assume the role of President, and Patrick Gallagher will become COO, both effective January 1, 2024. These appointments are being made to better position us for the next phase of our growth. And before you ask, I have no plans to retire. I will continue to be CEO and Chairman focused on Gallagher's strategy and global expansion. In their future roles, Tom and Patrick will help me lead organic and merger and acquisition growth initiatives, drive operational improvement and further promote our bedrock culture across the entire organization. This is the best business on the planet. I love my job and believe we are just getting started. Moving to results on a segment basis. Let me give you some more detail on our quarter's performance. Starting with the Brokerage segment. Reported revenue growth was 22%. Organic was 9.3%. Acquisition rollover revenues were $153 million. Adjusted EBITDAC growth was 23%, and we posted adjusted EBITDAC margin expansion of about 55 basis points. Let me walk you around the world and provide some more detailed commentary on our brokerage organic. And just to level set versus some of our peers, the following figures do not include interest income. Starting with our retail brokerage operations. In our U.S. P/C business underlying organic growth was about 8%. New business production and retention was better than last year, while less nonrecurring construction and capital markets business was a bit of a headwind. Our U.K. P/C business posted 7% organic with new business production and retention similar to last year. Our Canadian P/C operation was up 10% organically, reflecting solid new business and retention and more modest renewal premium increases. Rounding out the retail P/C business, our combined operations in Australia and New

All right. Thanks, Pat, and hello, everyone. Today, I'll walk through third quarter organic and margins by segment, make some comments about how we see the fourth quarter shaping up and provide some early thoughts on full year '24. Then I'll provide some comments on our typical modeling helpers using the CFO commentary document that we posted on our website, and I'll conclude my prepared remarks with a few comments on cash, M&A and capital management. Okay, let's flip to Page 3 of the earnings release. All-in brokerage organic of 9.3% which, as a reminder, does not include interest income like some of our peers report. Organic, including interest income would be about 12%. A few soundbites: first, in total, we came in a little bit better than we foreshadowed at our September IR Day due to really strong results from reinsurance and London specialty; second, base commission and fee organic was strong at 9.6%; third, supplementals and contingents, together up 5%. At our IR day, we flagged some softness, mostly related to the Maui fires. Since then, we have also seen a very slight uptick in expected insurance carrier loss ratios that also had a modest unfavorable impact to organic. Regardless, 9.3% in total without interest income, 12% with, both are fantastic results for the quarter. One special mention. Pat discussed that global renewal premium increases, we were seeing around 10% this quarter. And on the surface, it might appear this increase is a bit lower, maybe about a point from what we said in September and also from second quarter. It's important to note, when we look at our data by line and customer and then adjust for mix, the renewal premium increases for the third quarter are very similar to second quarter. So please don't interpret that there has been any meaningful shift in the market. We're just not seeing that. Looking ahead to Q4 organic. Over the last year, we have reminded that we have an accounting headwind to overcome. Recall in Q4 '22, we booked a change in estimate related to our 606 deferred revenue accounting. That will now create a more difficult compare, called out about a point of organic headwind. Again, no new news here, but just a reminder as you update your models. Controlling for this, we see fourth quarter underlying organic growth approaching 9%, but the headline might look more like 8%. If we post that, that would mean full year brokerage organic in the upper 8s pushing towards 9%. Again, these percentages do not include interest income. What a great year that would be. Flip now to Page 5 of the earnings release to the Brokerage segment adjusted EBITDAC table. We posted adjusted EBITDAC margin of 32.4% for the quarter. That's up 55 basis points over third quarter '22's FX-adjusted margin. That's great work by the team to end up a bit better than our September IR Day expectations. Looking at margins like a bridge from Q3 '22, organic gave us 80 points of expansion. Incremental interest income gave us 90 basis points. All-in M&A, mostly Buck which naturally runs at lower margins, impacted it by about 65 basis points. We also made incremental technology investments, called out about $7 million, and had some continued inflation on T&E, called out about $3 million, which in total used about 50 basis points. Follow that bridge and the math gets you close to that 55 basis points of FX adjusted margin expansion in the third quarter. As for adjusted EBITDAC margin outlook for the fourth quarter, we expect about 40 to 50 basis points of expansion. And remember, that's off of fourth quarter '22 margins recomputed at current FX levels. However, unlike the past few quarters where FX created some noise, we're fortunate that now there's not much impact to consider, so much easier to model. If we deliver on that full year '23 which show margins expanding 30 to 40 basis points or 80 to 90 basis points levelizing for the roll-in impact of Buck, that would be a terrific year. Looking ahead to next year, we are just beginning our budgeting process. And -- but our early -- very early thinking is that organic -- we're seeing organic in that 7% to 9% range. As for margins, we would anticipate seeing some margin expansion starting at 4% organic growth and perhaps if we hit 7%, call it around 50 basis points of expansion. And also, one other modeling heads up, please don't forget, first quarter '24 margins will have a slightly tougher year-over-year compare since Buck will still be rolling into our results. Okay. Let's move on to the Risk Management segment and the organic and EBITDAC tables on Page 5 and 6, a really strong finish to the third quarter. 17.9% organic growth and margins at 20.4%. As Pat mentioned, we continue to benefit from higher claim counts related to the new business wins from the second half of '22. Looking forward, we see organic in the fourth quarter around 13% and margins just above 20%. Organic does reflect the lapping of last year's newer large business wins and margins remain terrific. So if we deliver on that, full year organic would be above 15% and margins pushing 20%. That would be another record year for Gallagher Bassett. Looking ahead to full year '24, our early thinking is pointing towards 9% to 11% organic and margins around 20%. Okay. Let's turn to Page 7 of the earnings release and the corporate segment shortcut table. In total, adjusted third quarter came in $0.03 better than the midpoint of the range we provided during our September IR day. Two reasons: first, lower borrowings on our line of credit and some of the M&A opportunities were pushed into October and November and second, lesser FX remeasurement headwinds. Let's move now to the CFO commentary document to Page 3. A couple of things versus our September IR Day estimates. You'll see third quarter amortization expense is better by $7 million. But remember, this is noncash and doesn't impact adjusted EBITDAC nor adjusted EPS. This was simply due to balance sheet true-ups when we get our third-party M&A valuations. Then you'll also see depreciation is a touch higher by $2 million, but that is offset by change in acquisition earn-outs, which is lower by $2 million, so no net impact there. Looking ahead, we've updated our fourth quarter numbers and footnotes, so just do a double check of your models. And we will also update this page again during our December IR Day and give you a first look at 2024 numbers. Flip over to Page 4 of the CFO commentary document to the corporate segment outlook for the fourth quarter. Only real movement is that Q4 interest and banking expense is up a bit, reflecting more anticipated borrowing. Moving to Page 5. This is the page that shows our tax credit carryforwards. As of September 30, we have about $670 million available, a nice future cash flow sweetener that helps fund future M&A. When you turn to Page 6, you'll see the rollover revenue table for third quarter -- the rollover revenues for the third quarter were $153 million, that's a little better than our IR Day expectation, mostly due notably to 1 merger that really hit it out of the park during the second half of September. It really shows you the potential upside mergers can see after joining Gallagher. Looking forward, we have included estimated revenues for M&A closed and announced through yesterday. That's important to note these numbers already include expected revenues from Eastern and Cadence. We've assumed a mid-fourth quarter closing date, so please don't double count. And also, as we always say, please don't forget, you need to make a pick for future M&A also. In terms of funding M&A, first, available cash on hand at September 30 was around $550 million. Second, our fourth quarter is historically a very strong cash flow quarter. Third, we currently have nothing outstanding on our line of credit, so we can use that or do a bond offering. And finally, if we close a lot of the tuck-in M&A pipeline that Pat discussed, before year-end, we may use a small amount of stock, but call it a couple of hundred million dollars. As we consider these alternatives, we're always being very mindful of maintaining our solid investment-grade rating also. As for 2024, we are currently estimating about $3.5 billion of capacity to fund future M&A using only free cash and incremental borrowings. Okay. Those are my comments, another fantastic quarter by the team. It's looking like another fantastic year. Congratulations to Patrick and Tom on their new roles. We have terrific momentum taking us into '24. Back to you, Pat.

Okay. I think we're ready for some questions and answers. Operator, will you open it up?

[Operator Instructions]. Our first question comes from the line of Rob Cox with Goldman Sachs.

Thanks for the outlook on the organic growth for 2024. Just curious, you had previously mentioned that you didn't think there would be that much of a difference in sort of the different areas within the business growing at different rates. Curious if you have any updated thoughts on how different businesses may perform in 2024 versus 2023.

Rob, thanks for that. I think let us get through the budget process here, we'll have more for you at our December IR day. But right now, we're not seeing anything significantly different kind of across the portfolio of operations, but it's going to roll up somewhere into that 7% to 9% range as we're looking at it now.

Okay. Got it. And then just on the 2024 margin expansion of 50 bps. If you could achieve 7%, just curious on if that includes impacts from investment income or maybe a potential slight uplift from some of these higher-margin acquisitions you've done recently?

All right. So 3 things in there on that. Right now, the way I got to that number, doesn't assume much incremental lift from investment income. It does assume a little bit of a drag from one quarter of Buck rolling into our numbers that naturally runs lower margins. But by and large, maybe those 2 offset each other a little bit. And maybe there's a little extra roll-in impact from M&A from Buck. The rest of the M&A that we're planning on in our outlook for next year comes in pretty close to the same margins that we're at.

Our next question is coming from Elyse Greenspan with Wells Fargo.

My first question, reinsurance. Pat, you guys said 20% organic growth in the quarter. That's the strongest you guys have printed since you closed that deal. Obviously, Q3 is smaller from a revenue perspective, but I was hoping, is there more within that number? And then when you guys are guiding to 7% to 9% next year, I mean, what are you assuming just in terms of the momentum and the growth within that reinsurance business?

That's a good question, Elyse. I think as Doug said earlier, we're just in the throes now of budgeting, and I'd have to say that the reinsurance team has outperformed our expectations. They came aboard and have just continued to do an unbelievable job. And that 20% does include new business and great retention. So when I look forward, I'm not going to comment on rate. I'm not there yet. I got to get their professional view as we get into the budget. But I think that the business momentum will be good. I think retention will continue to be very, very strong. So would I tell you that I think we're going to see 20% organic next year? I don't know. That would be awfully hard. But I'm really -- this is a good business for us. The market there, similar to what we're seeing on retail, we are not seeing softening. As we said in our prepared remarks, there's capacity, but you're going to pay for it. And I don't think that's going to change between 1/1 and 7/1 next year. So I think that what you've got is kind of an interesting market. And again, this is -- if nothing happens in the cat world. So I'm not trying to waffle you. I don't have a really good clear answer for you at this point.

Yes. Same thing I said to Rob. I said let's give you that -- let's give more flavor by division in December. That will be -- we'll be talking to you again in 6 weeks.

And then a good problem to have, the results there have been really strong. I know there's an earn-out associated with that transaction. Is that something that you would account for in '25? Or is that something that's already been accounted for?

I think we'll have -- okay, the way it works is that we'll have to -- it gets triggered off a full year '24 revenues because it's heavily skewed towards 1/1 renewals, I think we'll have a pretty good estimate of where we sit here before December. So I think I'll be able to give you a number on what we think we're going to end up booking for acquisition earn-out. Now we adjust that out, but I think I should have a good number by our December IR day, and then that would be paid out in the first quarter or second quarter of '25.

Okay. And then the M&A pipeline sounds still pretty robust. Doug, you mentioned that some deals were pushed into October and November. Are those the Eastern and the Cadence transactions? Or are there other transactions that were pushed from a timing perspective that could be forthcoming?

I would say that it would be more so the Eastern transaction and it wasn't necessarily pushed. We had to file an HSR on that. So really, our early estimates of maybe getting it done in September might have been a little optimistic on that. But I wouldn't -- there's nothing else that you don't know about, let me put it that way.

Our next question comes from the line of Paul Newsome with Piper Sandler.

Congratulations on the quarter. I want to ask a little bit more about the M&A environment. Is there anything to be read here that there's going to be these big deals are coming out of banks. And maybe just some thoughts, if you have any about sort of how the buyers may be changing in this environment. I think we've been waiting for shifts in the market, but at least I've been sort of surprised at how they sort of happened or not happened in the last couple of quarters. But love your thoughts on that.

Well, I'll give you some and then Doug can make some comments as well. I do think, and we've said this before, that some of the competition relative to some of the private equity stuff is a little bit less robust. There is still plenty of competition. And if you put a nice piece of property out for bid, you're going to get a lot of bids. So there's good competition for these good properties. I can't get into the strategy of the banks as to by their deciding now is the time to exit, and we've seen that across a broad base. And I think it's probably because multiples are at very, very solid high levels. And whether thinks that those multiples may, at some point in time, begin to diminish, I'm not sure. But we've had incredible success with our friends at M&T. We're very excited about Eastern and Cadence. And frankly, if there's other banks that are looking in that direction, we're a very good place to look. In terms of other M&A opportunities, you've got 30,000 agents and brokers across America. A good number of them are still owned and run by baby boomers. They're good businesses. This has been a very robust time for them. The last 5 years have been outstanding for them. A lot of change going on in our market, an awful lot of data and analytics that they can't compete with. Now you have the advent of AI, which is coming on stronger and faster than I think any of us thought. And I think people look at it and say, maybe it's time to check who's out there. Maybe now it's not a bad time for me to look. And when you take a look at our pipeline, we gave you some numbers today. I mean, it's just incredibly robust.

And then completely shifting to a different topic, if I could. There's been some comments this quarter, I think about the shift back and forth between excess lines and especially in the standard carriers. And I was wondering if from your perspective, you're seeing any of that shift back to the standard carrier. Is there really anything that's major from a terms and conditions environment sort of excluding pricing?

No, we're not. I mean, the stuff that's in the E&S market has gone there for a reason, and that is growing every single month in terms of 15%, 20%. Our submissions at RPS are up substantially this year. We measure that every day, frankly. And our submissions into RPS, our wholesaling operation, are at an all-time high. Property, in particular, is a big driving line for sure, and there just is a lack of capacity, and it is getting -- it continues to be -- whoever can tell the best story might just get a quote. So no, I'm not seeing -- and we are not seeing terms and conditions soften while things still stay in the excess market. And we're not seeing business flow back to the primaries.

Our next question comes from the line of Greg Peters with Raymond James.

Pat, I feel like you have been saying you feel like you're just getting started for over 20 years now. So I guess no change there. Can we go back to your comments on the bank acquisitions. And I think you said some of the banks Cadence and Eastern are getting solid high multiples for those businesses. I think those were your words. And I look at the CFO commentary, and it looks like the -- you're -- inside that you're looking for -- your multiples are paying are 10 to 11x EBITDAC. Is that inclusive of Cadence and Eastern because it feels like those numbers were -- multiples for those businesses were a little bit higher.

Yes. Typically, what we do is for a larger transaction like that, and we have a couple of -- 1 a year or something like that, we typically exclude that. The purpose of that disclosure is really showing you what we're seeing in the tuck-ins. The reality is, is we're still seeing great opportunities, a little north of 10x, maybe sometimes you get 1 at 12, some at 10. But there's a really -- there's a ton of tuck-in opportunities that are still realizing there's terrific value in that 10% to 12% range. And the reason why is they understand that they have careers inside of Gallagher afterwards. Their employees and their producers and themselves have great careers inside of Gallagher. So what a terrific thing? Sell your business at 10 to 12x, come in and work, take on increasing responsibilities, double your agency or your location. So the reason why we can still be effective buyers at 10 to 12x is the future opportunity of getting better together. We set it for 20 years since I've been here. When 1 plus 1 is equal 3, 4 and 5, that's what they're seeing. So we continue to click those off day in and day out kind of in those multiple ranges.

Okay. That makes sense. And then on those -- the larger transactions, it doesn't seem like -- maybe I'm -- I don't know the answer. So is there a lot of synergies to be harvested from as you integrate the businesses? Or are the stand-alone teams sort of like what you got with the WTW reinsurance operations.

I think with Eastern and Cadence, I mean, it's not a -- there's no -- there's very few human synergies to be gained on this. As a matter of fact, they do a really great job servicing their customers and selling the insurance. But there are efficiencies that can be gained through a common general ledger, a common agency management system only needing 1 cyber protocol that runs over your platform. So there are some synergies there. But those are in the $3 million, $4 million, $5 million type numbers, not in the $25 million, $30 million or $40 million type number.

The real kicker there, Greg, is that look at these bigger deals run by banks, and this is why we say it very much feels like we're buying somebody similar to us. These are firms that were rolled up by the bank, typically good community people. I've heard 3 separate outreaches from Cadence people in the last 2 days that I've known in 1 instance that they came in to kick the tires with us in 1998. And I remember the guy wrote to me and he goes, "Hey, I came with Shorty and I remember Shorty and I came with Jim, I remember Jim and I can't tell you how excited we are." Now what we're bringing to them that Cadence could never do is that whole discussion of moving upstream. We can show you statistically that our closing rate on bigger deals, and I'm not talking risk management, huge accounts. I'm just saying the bigger deals that are generating over $125,000 to $150,000 of commission are significantly greater today than they were 5 or 10 years ago. This is what we're giving them the opportunity to go after. They're typical agents in these banks that look just like everybody else, and now they're going to go out. And frankly, they're going to have our tools and they're terrifically excited about it. So that's, I think, the whole synergy thing. This is not take out headcount. This is turn them on, show them what we do, give them the tools and watch them eat the market all around them.

Okay. That makes sense. I guess the final question, I know -- I think it was Paul who was trying to get at this. But frankly, we're hearing of some stress in some of the PE-backed roll-ups where the combination of higher interest costs and earn-outs are pressuring their free cash flow. What's your view of some of those smaller entities that might be having problems? Could we see you be interested in some of those properties at some point in time if they should become available?

Well, here's the thing. First of all, Greg, we'll look at every single opportunity we can. And our first question every single time is what's the culture. What was it that went into this group. In most of these, there are situations where we didn't succeed in buying something they bought. Let's talk about that around this table, not with them in the room. XY

Our next question comes from the line of Mike

Maybe I missed this, but on the Cadence deal, is it -- am I right looking at the revenue and EBITDA disclosure that Cadence has a 36% to 37% margin, which is pretty great. And then also on the deal there was -- you called out tax benefits. I don't recall you guys calling out tax benefits in the past.

Yes. All right. First, you're right. I think it might be about 34%, but I think [indiscernible] over a point or 2 on that. I think that when it comes to the tax, I think it's important on these margins, we always get a step-up in basis on smaller deals, but on many larger mergers that these sellers are not willing to allow a step up in basis. In this case, the sellers were willing to and we paid a little bit more cash upfront on it. But we're going to get $250 million worth of deductions over the next 15 years. Your present value that back at 5% or 6%, you get something . So it really doesn't impact them all that much because I don't know if they're -- they might be able to shield it with NOL carryforwards or something like that, but it benefits us a lot. So to be able to achieve that. And it's not all that important in many times for, let's say, a PE firm that buys a bigger one over at trades because they've got the large interest shield coming off of the high levels of debt they run there. But for us to be able to negotiate that benefit and to be able to have a seller that's willing to allow that benefit to pass out, that makes a big difference. So in this case, this is a true win-win for them. They get more cash, we get more cash, and it brings our multiple down considerably on it. This is not using our clean energy credit. We have $670 million of clean energy credits available. Think about that. We'll use those over the next few years. It's almost like we have another free Cadence coming our way because of those tax credits. So tax does matter. And in this case, we think that a conservative view of that benefit is $150-some million.

Interesting. And I guess this one probably for -- this one question is for Pat, and congrats to Thomas and Patrick on our new appointments. Just curious on Pat. Will these new appointments cause any of your existing managers other than yourself to share responsibilities they didn't previously share?

There will be some follow-on promotions. Sure. There's good opportunities for everybody at Gallagher, yes.

And so were these promotions well-telegraphed? Or is this kind of like -- were these promotions like about well-telegraphed, like within the firm, like over time or were these kind of...

I'm going to ask you the Gallagher answer. There's not a lot secret at Gallagher, right? Yes, I would say that these moves have been telegraphed over about 20 years.

Our next question comes from the line of Mark Hughes with Truist Securities.

On the -- could you give any guidance on the corporate segment profit for 2024. Any early thoughts there?

We haven't. And can you give until December? I know you're trying to figure out your '24 models. You might want to take what we did this year and just take it by line by line and make a site pick on it to see what you think it -- what would happen there. I know it's really difficult to do, Mark, because of FX remeasurement gains. I know we put some acquisition costs through there that can be lumpy. And there's a lot of tax, restructure numbers that run through there as we implement tax planning strategy. I know it's really difficult. But if you could you just give me until December and I can get that to you.

Yes. Yes.

We get this every year.

Any thoughts on medical inflation? Just curious to get, I think, the benefit is being helped by higher health care costs for employees, but the medical inflation impact on, say, workers' comp or GL.

It's interesting you should ask because we were talking about that with the board this week. And yes, we're seeing a lot of pressure on medical costs. Full insured renewals at our largest carriers are showing 7% to 9% increases right now as we speak. When you start to take retentions and you start to get in the stop-loss market, we're seeing averages there closer to 17% to 18%. That's on premium now. That's not on the underlying costs. But that's because more of the claims are tagging those carriers. So they're not only trying to move away in terms of the low end of the cost, but also they're having to pay that. So if you take a look at all of it, all in, Mark, I'd say that our numbers that we're seeing are about 8% to 9% and that's embedded both in work comp as well as health insurance across the United States.

Our next question comes from the line of David Motemaden with Evercore ISI.

I was wondering if you could just help me think through just how much of the organic growth over the last several years and even this quarter is driven by just the macro environment versus what you guys have been doing behind the scenes to accelerate share gains? Because it feels like there's been a lot going on to help you guys gain share and that the share gains are accelerating. So I'm just wondering as kind of a big picture question. as you guys head into next year and you think about that 7% to 9% organic, I guess, how much of that do you think is coming from market share gains as you guys continue to execute versus like rate and exposure improvements?

Well, let me split the question with Doug in this regard. Let me talk about market gains in terms of share gain and then he can tear the numbers a bit. But we're seeing and we're measuring this literally every single day, every month. We know now where we're producing business. We know, for instance, that 90% of the time, we compete with somebody smaller than we are. We know exactly what's happening in our verticals. We have 32 verticals that we're very, very clear on management expectation, knowing what's going on, building products and what have you. That's in the property casualty arena. We have another 7 or 8 in benefits. And in those verticals, we know that our growth rate is substantially greater than what is in our just general book of business. So internally, we know that we are taking definite share in those verticals. And I would probably -- I'd throw out a number, Mike, maybe you throw a number out on the table of what...

In terms of?

Just in terms of the growth rate in the vertical as opposed to general.

92% of our new business.

19% of our new business falls...

Into one of our verticals.

In one of those -- 19?

92%.

92, that's what I thought. I heard 19, I apologize. So each of those are growing faster than the general book. So value -- again, you've got to look at rate, you've got to look at exposure and all that other stuff. But when you talk about share, there is absolutely no doubt you go back to Doug's comment. An acquisition can be 1 plus 1 equals 5 because when Gallagher shows up with the relationships and the capabilities of the local broker and brings those relationships together with what we have as capabilities and the culture works, we don't have to force sharing on people. The fact that they can pick up the phone and say, "I've got a college University. I've never worked on one before. Can somebody help me." We will swarm that opportunity. We will write that college University they'll get their fair share, everybody wins, and we're not fighting that as a local entrepreneur who doesn't want to play with the big boys. That's the excitement. So I know that's a long-winded weird way of saying it, but we are definitely taking share. To the numbers, Doug, I'd throw over to you.

[indiscernible] that 7% organic growth next year, I'd say that half comes from net new business wins or taking share. I would say, 1/4 is coming from exposure units and another quarter is coming from rate. If you got 9%, you probably got 1/3, 1/3, 1/3 in there.

Got it. That's really helpful. I appreciate that. And then maybe just a follow-up. We've seen obviously the 2 -- the Cadence and Eastern deals on top of the M&T Bank broker last year or earlier this year. So I guess I'm sort of wondering -- as we think about the sustainability of that organic, I know you're the preferred provider for I think it was Cadence. But I guess, how do you manage the fact that -- or the potential that there might be more of like an open process for some of those existing customers now that it's not wholly owned. I don't know if that's something that you guys have worked through planning? Or just maybe help us think through that.

I'll help you think through it and probably the people from Cadence Bank and say, he's maybe talking off the top of the head, blah, blah, blah. But I don't think the bank did much to help them produce insurance, like probably hurt their production, which is why when you look at some of these deals, the Board goes well, where is the growth. Cadence and Eastern good growth, but the fact is -- those people have gone out and scrape for that business around the bank relationship, which was, of course, when they bought those firms, supposed to be the golden nugget in terms of being able to produce business that just isn't true. In fact, I think we're going to unleash an opportunity to really grow the top line.

Our next question comes from the line of Meyer Shields with KBW.

Two big picture questions. One, there's been some press about larger insurance brokers getting back into wholesale. Would that matter at all to Gallagher?

Not really. If you take a look at our wholesale business, RPS. We do not mandate inside Gallagher, so it's not 100% Gallagher placements there. We did consolidate down to a smaller number of players and RPS does about 50% of Gallagher's placements. So we're very cognizant of what the world is like out there. But really, RPS trades with 15,000 to 18,000 independent agents. And RPS does not trade particularly at all with our 3 larger competitors. So if they were the ones that choose to come in back into the market, we think it would have virtually no impact on us at all.

That's very helpful. Second question, and this relates to what you've been talking about, Pat, with the additional resources that being part of Gallagher brings. How rapidly can acquisitions take advantage of that? And is that something we should factor in when we're modeling acquired revenues?

Day 1, and I do mean day 1 and the team will swarm that opportunity. Now do they get used to operating that way? Have they got the customer teed up. It takes -- it's still a learning curve in all fairness, they'll call and we'll jump on the plane and have a shot at that university. But it will probably be a year or 2 before we land it. So I can't sit here and go, day 1, it just ratchets up. But I'll tell you what it does. It gets everybody in that firm excited. It worked. Gallagher helped, you can't believe it. We turned this risk manager on their head. This is really cool. Next time around, what's the strategy? What's the methodology. So the resources are truly available to that team on day 1. Now would I factor into the earn-out. Some of them take great advantage of it and really does help. It makes their earnout. Others, as I said, it's a longer ramp-up speed and it's just a matter of the individual leaders.

Yes. One thing, I think we actually understate true organic because we don't consider any new business, net new business wins by those mergers in the first year. That doesn't get counted as organic. Was it $20 million, $30 million more of net new maybe across the business every year? I don't know. It might be worth 20 basis points on our organic growth over the course of the year. So I think it naturally understates it. But I think the point is, like I said on this one just a minute ago. We had a merger partner that just crushed it here at the end of September, and that doesn't go into organic, but it sure impacts our acquisition revenues. Now we try to give you that when we do these projections. So look at that on Page 6 of our CFO commentary. But the point is the great mergers are the ones that come in, hit the ground running, use our resources and capabilities. And next thing you know over the next 2, 3, 4 years, they're just hitting it out of the park.

We've showed you in our IR Day, things like our drive, just Gallagher Drive. One, just one item that is so cool to these people. And it's basically the ability to sit with a client and say, people like you buy this. And here's what the lines of insurance are there going to these types of truckers in your area or construction companies or senior living. Here's the layers that they're buying. And by the way, you're holding a $10 million liability limit. Most of your competitors are paying 20 -- or buying $20 million of umbrella. Let me show you the losses we have in our book that appears to $10 million. You probably ought to buy the 20, there's reason for that. It blows the competition away and our merger partners can't wait to get their hands on it. That's 1 thing, and there's a dozen of those.

Our last question is coming from Yaron Kinar with Jefferies.

I apologize, I had some technical difficulties. So I hope I'm not asking stuff that's already been asked. With regards to Eastern and Cadence, do they have any different seasonal patterns? I think you touched on growth on the margin profile. But I'm curious if that margin profile kind of holds true to what you see in brokers already throughout the year.

No, there's no seasonality.

Yes. Remember, we're seasonally larger primarily because of our benefits and because of our reinsured business, our P&C business is fairly steady throughout the year over the 4 quarters. And maybe it's 23% on one quarter and 27% another, but we're not getting the wild swings like you do in reinsurance and employee benefits.

Got it. And do either of those deals fall any vertical space that you were looking to boost stop? Or is it more of a geographic play? What's the rationale there?

Mike, go ahead.

Yes, this is Mike Pesch. So I would say both of them are -- in their geographies are strong where we are maybe strong in other industries. So in Cadence, in their perspective, we do a lot of public entity in the mid-south region, and that's not one of their strengths. But they do a lot in construction and manufacturing. So it complements us really, really well. It's one of the reasons we like them so much. Eastern is the same way. If you look in New England, New England is heavily weighted towards life sciences, technology and D&O, and they balance that book considerably with a lot of other industry verticals, including construction. So it is very much a complementary business to each of those areas.

Got it. And then one quick one to end up. Corporate expenses were quite high this quarter. Were there any one-offs there?

I think when you look at it, if you look at the adjustment -- if you look at it on an adjusted basis, there were some tax and litigation items when we adjusted that out. On an adjusted basis, it's kind of noisy. Comp might be up $3 million or $4 million. I think we're a little further ahead on our corporate bonus accruals than we have been in the past. And when you look at operating expense, it looks down considerably on an adjusted basis, but that's the FX remeasurement gains that you're seeing. So if you're looking at it on a pretax basis on an unadjusted basis, that's what you'll see in there. But there's nothing fundamentally underlying our expense structure in the corporate segment.

Well, thank you again, everyone, for joining us this evening. To our 50,000 colleagues across the globe, thank you for your hard work this quarter and every quarter. Our operational and financial success is a direct reflection of your efforts. And as pleased as I am with our third quarter performance, I'm even more excited about our future, future organic prospects, future M&A opportunities and our ability to become more productive and increase quality. We look forward to speaking with the investment community in person at our IR Day in December. Thank you again, everybody, and have a good evening.