Hub Makes Biggest Acquisition, Spending $90M For Safecos Talbot

In its first U.S. acquisition of 2004, and the first major deal since putting in place a dedicated acquisition team, Hub International kicked off its strategy to expand its U.S. footprint with a $90 million deal for Talbot Financial, a unit of Safeco.

This was one of two separate cash transactions announced by Safeco last week, with the other involving the sale of its life and investment businesses. (For details, see page 10.)

With projected revenues of $100 million, this is the largest deal that Hub International has made to date, according to Michael Rosenbaum, an investor relations representative for the Chicago-based brokerage firm.

Hub's “long-stated goal has been to expand its U.S. footprint across the whole country with an emphasis on the Southeast, the Southwest and the Western states,” Mr. Rosenbaum said, explaining that Talbot Financial covers a good part of the Southwest and Western regions. “The footprint is fairly complete in Canada, [where] the major population centers are covered.”

Under the Hub umbrella, the Talbot acquisition will become what the firm refers to as a regional “hub.” Mr. Rosenbaum explained that “a 'hub' becomes the base on which the company grows the rest of its business by buying smaller brokerages.”

(According to information on Hub's Web site, each of Hub's 11 “hub” brokerages in North America has significant market presence in its geographic region, providing insurance brokerage services and managing the various other Hub International offices in its territory. The hub brokerages are responsible for growth through sales, service and fold-in acquisitions.)

Within Hub's network of brokerage offices, an operation has to have at least $10 million in revenues to become a regional “hub,” Mr. Rosenbaum said, emphasizing the magnitude of the Talbot deal. With $100 million in annual projected revenues, “this is a substantial acquisition,” he said.

Talbot Financial, headquartered in Albuquerque, N.M., will become the sixth U.S. “hub.” (In the United States, there are five existing hubs, and there are 11 in all of North America.)

In a press statement, Martin Hughes, Hub's chairman and chief executive, said the continuing contribution of Talbot's management team and its 150 employees is a critical component of the purchase, as it has been in other major acquisitions.

Hub has a Los Angeles-based office in the West, Mr. Rosenbaum confirmed, declining to speculate on whether the two would be maintained as separate operations. “We haven't made any announcement on how these pieces are going to fit,” he said.

The deal gets the company back on track with an acquisition strategy that had slowed somewhat in 2003.

“In January, the company announced that it wanted to accelerate the process of acquisitions. The pipeline was decent, but the company had not done a 'hub' acquisition in 2003,” Mr. Rosenbaum noted, referring to a Jan. 22 announcement revealing that President Richard Gulliver would assume ultimate leadership of the company's acquisition program, while Michael Sabanos would become Hub's director of mergers and acquisitions, dedicating 100 percent of his time to the role.

“The two of them have been burning up the air miles” since their January appointments were announced, Mr. Rosenbaum reported.

He also highlighted a remark made by Mr. Hughes during a year-end conference call indicating that acquisitions in the pipeline were at a record level and “north of $200 million worth of revenue.” This deal “is part of that” $200 million figure, Mr. Rosenbaum said.

Does that mean we can expect more major announcements in 2004, totaling another $100 million? “The company did about $285 million last year in revenue, so an extra $200 million [for 2004] would be a major stretch,” Mr. Rosenbaum said.

Mr. Rosenbaum said that the product mix and customer base of Talbot is roughly similar to Hub, noting that the main appeal of the acquisition was the geographic region and “the way they do business.”

“Some management teams like the idea of being aligned with a company that's growing,” he said, noting that Hub looks for targets that want to “continue the growth of the company that they sell to, as opposed to selling as part of an exit strategy.”

As a unit of Safeco, even though Safeco had reported the results of Talbot Financial within its Life & Investments segment, the brokerage writes largely property-casualty business, distributing insurance and investment products through independent agents, broker/dealers and financial institutions.

Neal Fuller, vice president of finance for Seattle-based Safeco, who described Talbot as a large broker/dealer, estimated that 80 percent of Talbot's business was in P-C insurance. “As independent agents will, they sold multiple products [including] some Safeco products, and had appointments with many, many different insurance companies,” he said.

In a press statement, Hub stated that Talbot derives most of its revenues from traditional middle-market commercial lines, personal lines, employee benefits and life insurance, with the sale of annuities and other financial products accounting for approximately 10 percent of Talbot's revenue.

The first step in completing the deal, according to Hub, involved signing a definitive agreement to invest in Satellite Acquisition Corp., a corporation formed by a senior management group of Talbot Financial Corp. Satellite Acquisition Corp. will use the proceeds from the investment to simultaneously purchase Talbot and all of its subsidiaries from Seattle-based Safeco Corp.

Under the purchase agreement with Satellite Acquisition Corp., Hub will acquire 70 percent of Satellite Acquisition Corp. On closing, management of Talbot will hold the remaining 30 percent of Satellite Acquisition Corp. Hub also will purchase the remaining 30 percent interest from management over the next three calendar years.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, March 19, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Hub Makes Biggest Acquisition, Spending $90M For Safecos Talbot

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