Insurance brokerage Hub bulking up Canadian benefits business with acquisition spree
|National Post 10 Oct 2019 at 08:25|
The biggest insurance brokerage in Canada has been on a dealmaking blitz that may only be about halfway done, according to the company’s Ontario chairman.
Chicago-based Hub International Ltd. sells insurance, but it has also spent the past year expanding the Canadian side of its business, which advises companies on their employee benefits, such as health or retirement plans. It has been doing so in part by acquiring a number of boutique firms.
On Tuesday, Hub said it acquired for an undisclosed sum Toronto’s PDF Financial Group Inc., an independent brokerage that helps a company’s human-resources department manage employee programs. The acquisition was one of five such deals Hub has announced to date in October, involving three companies in Canada and two in the United States.
Hub is Canada’s biggest property and casualty insurance broker by a “healthy margin,” but it had heard back from some clients wanting advice about benefits and pensions as well, according to Gregory Belton, the executive chairman of Hub Ontario.
After announcing its Canadian benefit strategy in July 2018, Hub noted at the beginning of this year that it had already acquired 13 Canadian employee-benefit and pension brokerages since 2018, increased fee revenue to more than $50 million and opened seven new offices. Hub wants to earn more than $100 million in commission fees by 2021, and said it expected to open an additional 10 offices.
“I would say that we’re about halfway done in our acquisition strategy,” Belton said. “We have a fairly robust pipeline across the country, and you’ll see further acquisitions being closed in the coming months.”
Mike Berris, a partner at accounting firm Smythe LLP who specializes in valuations and M&A consulting in the Canadian P&C insurance industry, said he expects more activity in the benefits space — although not all brokers may be able to pull it off.
Even though it s a risk-based product, you really have to have scale and expertise to do it properly.
Mike Berris, partner, Smythe LLP
“There’s a lot of desire, but there’s only so many people who are capable of doing that,” Berris said. “Even though it’s a risk-based product, you really have to have scale and expertise to do it properly.”
Hub has been scaling up since it formed in 1998 with the merger of 11 Canadian brokerages. It went public soon after, expanded into the U.S. and in 2007 was bought by private-equity firm Apax Partners and investment bank Morgan Stanley.
In 2013 Hub announced it was being acquired by funds advised by another private-equity firm, Hellman & Friedman LLC, in a deal that valued the brokerage at around US$4.4 billion.
Hub then said in October 2018 that it had agreed to a deal involving “a substantial minority investment” from funds managed by Toronto-based investment firm Altas Partners. The agreement implied a total enterprise value for Hub of more than $10 billion.
“Like a lot of private-equity-owned brokerages, they have been very, very aggressive and they’re very, very effective in growing through acquisitions,” Berris said.
Belton said most Canadian businesses fit the mid-market mold, but that there is no “dominant player” in that section of the market right now for the sort of benefits business Hub is expanding. Even so, he said there has been “very robust competition” for the types of companies Hub is buying.
“Our aspiration is to become the dominant player, just as we are in the property-casualty side of the business,” Belton said.
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