Monday’s $4.4 billion acquisition of Hub International Ltd. by Hellman & Friedman LLC could raise producers’ interest in making a sale, but will likely have minimal impact on the price paid for agencies, insurance agency consultants say.
President of Reagan Consulting, Kevin Stipe, was bullish on the potential for increased M&A activity, saying, “for agency M&A, it’s full-steam ahead.”
He says the valuation was “very strong,” adding, “There is nothing disappointing about this deal.”
He says M&A is beginning to heat up after a very quiet beginning to the year with buyers paying six to eight times earnings for agencies.
Timothy J. Cunningham, managing director of OPTIS, an investment-banking and financial consulting firm, was a bit more subdued, stating, “This creates a lot of chatter; it creates a lot of noise and a lot of e-mails, but I don’t think we can say definitively in three to six months from now—‘Oh-boy—that Hub deal—we saw an uptick of 20 percent [in pricing];’ that’s not going to happen.”
Cunningham adds that the $4 billion price tag for Hub may have some producers asking if now is the time to sell, believing that the price could translate into a windfall for them. However, he says the price paid for Hub is within the range of value for the firm. Indeed, he says the price should serve as confirmation of values paid for firms that run at around six times EBITDA (Earnings before Interest, Taxes, Debt and Amortization).
Regarding the sale itself, Cunningham says, “It’s not unexpected.” He notes that rumors were circulating throughout the industry for over a year that Hub and its private equity partner at the time—Apax Partners—were considering an initial public offering or selling to another private equity firm.
Both consultants agree the acquisition indicates that private equity money remains highly interested in investing in insurance agencies and brokerage firms. The advantage for them is that the firms provide continuous lines of cash flow and do not require a lot of capital for their operations.
Hub was a public company traded on the New York Stock Exchange and Toronto Stock Exchange before Apax Partners took the company private in 2007 in a $1.7 billion buy-out.
Cunningham says the most recent sale is a “natural progression” for private equity firms that need to sell their holdings every four to seven years to obtain the value of their investments.
In an interview with PC360, Hub Chairman and CEO, Martin Hughes, says the firm agreed to the acquisition with H&F because he and the private equity firm’s management share the same view about the company’s direction—that it remains consistent with its current growth strategy through the combination of organic growth and strategic acquisitions.
Hughes says he made a commitment to stay onboard for five years and senior management will remain unchanged.
“We have a great track record and that is why [H&F] likes us,” says Hughes
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