Apax, Morgan Stanley PI to Make 3x Their Money with Hub Sale

Apax Partners and Morgan Stanley Principal Investments are selling Hub International after six years.

Hellman & Friedman has agreed to buy the Chicago-based insurance broker in a deal valued at $4.4 billion. The San Francisco private equity firm will have a majority of the company, while Hub’s senior management will hold a “significant equity position,” a statement says. The transaction is expected to be completed before the end of 2013. Bank of America Merrill Lynch, Morgan Stanley Senior Funding Inc. and RBC Capital Markets are providing debt.

Hub, which provides property and casualty, reinsurance, life and health, as well as employee benefits, has grown through 300 acquisitions of insurance brokerages since its inception in 1998, Reuters reported. The company has more than 6,500 employees in the U.S., Canada and Brazil and is expected to hit about $1.2 billion in 2013 revenue.

In 2007, Apax and Morgan Stanley Principal Investments took the company private for $1.8 billion, including $145 million of debt. The investors, including Apax, Morgan Stanley PI and company management, put in about $700 million equity, a source told peHUB. Apax owned about 55% of HUB while Morgan Stanley PI had 35%, according to an SEC filing. At 55%, Apax looks to have invested $385 million equity, while Morgan Stanley PI likely put in $245 million.

With the sale, Hub’s equity investors stand to make 3x their money, the source says.

Apax’s investment in Hub came from its seventh U.S. buyout fund and its seventh European fund. Apax US VII raised $856.3 million in 2006 and Apax Europe VII LP collected 11.2 billion Euros in 2007.

Hub did lots of accretive M&A while it was owned by Apax/MSPI, the source says. These deals were financed through debt and cash flow, the person says. In April, Reuters reported that Apax and Morgan Stanley were exploring a sale of the Hub.

Hellman & Friedman’s pending buy of Hub is the latest in a wave of PE-backed insurance deal. Brown & Brown, in May, agreed to buy Beecher Carlson Holdings from investors including Austin Ventures and FSPM. The transaction was valued at $360 million. Madison Dearborn Partners also acquired National Financial Partners for $1 billion in April. In late 2012, Onex Corp. closed its $2.3 billion buy of USI Insurance Services. The seller was Goldman Sachs Capital Partners. KKR also announced a deal to buy Alliant Insurance Services from Blackstone last year.

BofA Merrill Lynch, Morgan Stanley and Stephens provided financial advice to Hub and Apax.

Apax and Morgan Stanley declined comment. Officials for Hub could not immediately be reached for comment.

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