A Hub Canada executive says M&A is likely to heat up as serious buyers take renewed interest in P&C brokerages.
In an interview with Canadian Underwriter, Greg Belton, executive chairman of Hub International Canada, said there is “no lack of new interest or real buying power that will continue to fuel acquisitions in Canada’s P&C marketplace.”
Pandemic had little impact
COVID-19 has not deterred Hub International from going after back-to-back acquisitions in several Canadian growth markets, including commercial specialty, employee benefits, not-for profit and cyber, Belton said.
While the brokerage “briefly paused” for a couple of months to assess the impact on its business when COVID-19 first hit, the pandemic did not hinder its original M&A strategy to gain a foothold in markets it predicts will grow in Canada.
Greg Belton, executive chairman of Hub International Canada
Hub has acquired four Canadian brokerages so far this year, beginning with Saskatoon-based Galon Insurance Brokers in February. Two months later, Hub bought Calgary-based Wessex Financial, an independent employee life and benefits firm. Another two acquisitions followed in June, when Hub bought Nova Scotia-based Salvatore Insurance Brokers Ltd, a commercial insurance brokerage serving Atlantic Canada, and Calgary-based credit risk brokerage Global Credit Risk Management Inc.
While expanding its geographical footprint has always been part of Hub’s M&A growth strategy, Belton said they’ve prioritized acquiring both employee benefits and retirement firms and those that specialize in growing commercial markets.
“In the last three years, we’ve aimed to occupy the same meaningful position in the employee benefits and retirement space as we do in P&C,” Belton said. “In addition, much of our M&A activity focuses on commercial specialty in sectors of the economy we see as growth markets over the next few years. In Canada that includes real estate, construction, healthcare, entertainment, financial institutions, hospitality, transportation and a new area for us: not-for-profit.”
Hub would also like to acquire brokerages that specialize in growth coverages like cyber and D&O liability, Belton added.
“Dry powder” waiting to be spent
A number of factors will continue to affect M&A growth in P&C, Belton said, including seller behaviour driven by potential increased capital gains tax in Canada, historically high multiples, aging brokerage owners, and smaller generalist brokers who can’t compete with larger specialty firms.
“Recently there’s been a real interest in our sector with a flow of private capital into our business in other forms of investment — that’s increased competition. People are speculating about how long this will go on, but judging by the amount of dry powder [capital] just sitting on the side-line waiting to be invested, I don’t see this trend stopping in the next couple of years,” Belton said. “And who knows what the economy has in store for us as we emerge from the pandemic.”