Hellman & Friedman LLC, the buyout firm co-founded by Warren Hellman, agreed to buy Hub International Inc. in a transaction that values the insurance broker at about $4.4 billion.
The deal is the largest takeover of a U.S. insurance broker on record, according to data compiled by Bloomberg. Funds managed by Hellman & Friedman will own a majority stake, while management of Chicago-based Hub will maintain a “significant equity position,” the broker said in a statement today.
Private-equity firms including KKR & Co. (KKR) and CVC Capital Partners Ltd. have been striking deals in insurance services to benefit from steady cash flow and low capital expenditure. Hub has more than 6,500 employees in the U.S., Canada and Brazil, the company said, and it’s projecting revenue this year of about $1.2 billion. Brokers act as middlemen between commercial insurance buyers and underwriters.
Hub’s “growing market footprint and capabilities will allow it to capitalize on significant opportunities,” David Tunnell, a managing director at Hellman & Friedman, said in the statement.
Hub was taken private in 2007 by London-based private-equity firm Apax Partners LLP and Morgan Stanley’s private investment unit in a $2 billion transaction. The owners will reap a profit of more than 200 percent on their $650 million equity investment, according to a person familiar with the deal.
Apax and Morgan Stanley (MS), which was a minority co-investor, doubled Hub’s earnings before interest, taxes, depreciation and amortization to just under $400 million over the past six years, said the person, who requested anonymity because the details are private. Apax declined to comment on the firm’s profit, saying in an e-mailed statement that the owners grew Hub through acquisitions, making it the largest insurance brokerage in Canada and expanding its business to Brazil.
Hellman & Friedman, based in San Francisco, was started in 1984 and is led by Philip Hammarskjold. The firm was founded by Hellman, who died in 2011, and Tully Friedman, who runs Friedman Fleischer & Lowe LLC, a San Francisco-based firm that invests $50 million to $500 million in companies.
Hellman & Friedman is deploying its seventh fund, with more than $8.9 billion, and has invested in more than 75 companies over its history, according to its website. Its insurance transactions include reinsurer PartnerRe Ltd. (PRE) and Sedgwick Claims Management Services Inc., and previous insurance deals include reinsurers Arch Capital Group Ltd. (ACGL) and GeoVera Insurance Group.
Insurance brokers will have plenty of potential to generate cash in the coming years, with growth in the industry exceeding the expansion in gross domestic product in some countries, Keefe, Bruyette & Woods Inc. analysts led by Meyer Shields wrote in a note to clients on July 30.
“Revenues should grow as global GDP rises and as insurance penetration deepens, especially in emerging markets where premium volume growth tends to outpace GDP growth,” the analysts wrote.