Hub International looks poised to sell a minority stake in the business to Blackstone or Leonard Green, Inside P&C can reveal.
Sources said that the strategic process is in its latter stages with tools down for CD&R, CVC and Hg.
Bid details are being closely guarded, but sources believe an enterprise value of under $25bn likely is now likely, based on bids of ~16x just under $1.5bn of Ebitda. This would be consistent with the likely 15x-17x range this publication cited as a likely valuation for the deal after revealing the process in February
If a deal is inked, it will be the highest-ever enterprise achieved by a private broker.
Sources said that the Morgan Stanley-run process is proceeding at pace with potential for a partner to be chosen in as little as a week.
Both alternative investment giant Blackstone and LA-based private equity house Leonard Green have been doing work on US broking for some time, and have participated in a number of processes over the last 12 months.
Sources said Blackstone's bid comes from its Tactical Opportunities Fund, a vehicle that has a lower return hurdle in the teens and a mandate that allows it to make longer investments.
Blackstone has total assets under management (AuM) of ~$900bn. Its Tac Ops fund has raised $4.5bn for its most recent fund as of November last year.
Leonard Green – a new investor to insurance – is a smaller investor, but still a significant PE house. The sponsor has total AuM of $70bn and closed two funds last year with a combined $18bn.
Sources said that given the massive deal size, both Blackstone and Leonard Green have additional deal-specific support from Limited Partners.
The valuation will likely fall some way short of the 18x multiples achieved by some other recent platform deals, most notably Foundation Risk Partners last year.
This reflects the challenges that prompted this publication to suggest that the deal would “not be a slam dunk”.
Hub is a quality asset, but has three main issues in maximizing valuation. First, at $4bn of run-rate revenue and just under $1.5bn of adjusted Ebitda, the business is huge. Even acquiring a 20% stake in the business would require an equity check in the region of $3bn, with additional assumption of debt.
Second, with Hellman & Friedman set to retain a substantial stake, and management led by CEO Marc Cohen also big shareholders, the new PE investor is likely to be an effective passenger albeit with the ability to influence via board representation.
The third challenge is that of the small number of PE houses big enough to do the deal, a number have a conflicting investment that would likely preclude them bidding.
Sources further suggested that Hub had been unable to push the use of pro forma adjustments to Ebitda as far as some other brokers in recent processes, as its scale necessarily focuses attention on the public brokers that have much more stringent standards around Ebitda reporting.
As M&A conditions have tightened due to the increased cost of capital and a weaker growth outlook, the size of the bridge – the amount real Ebitda is inflated with adjustments – has increasingly become a point of contention in private broker M&A.
Blackstone and Leonard Green declined to comment. Hub was contacted for comment.
