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By DAN REYNOLDS, senior editor of Risk & Insurance®

And, having just turned 50 this year, the Toronto-based insurance executive has had all year to savor the results of an acquisition in January 2008 that saw privately held Chicago-based HUB International Ltd. reach out to acquire HKMB.

"We're pumped. We had a big year in 2008 which was a bad year for a lot of firms and a bad year in the economy. We had a really good year and I think when HUB bought us they knew what they were buying was people," Belton said during a phone interview with Risk & Insurance® on Jan. 30.

In what has generally been a down or flat year from a revenue standpoint for many brokerages, Belton said the Toronto operations of HKMB HUB, which has about 45 account managers, saw a 12 percent growth in revenue in 2008.

"In general, everything that we hear is that the average broker is either flat for somewhat down. So we had very strong organic growth. It was a year of adjustment for us because we are under new ownership," Belton said.

Belton's story is one that should provide hope to anyone who has had their optimism dampered by the economic storms of 2008, which saw so much asset value, on paper anyway, burned up like a paper match.

At the age of 29, Belton, along with one of his current partners, John Hawkrigg, who was all of 24 at the time, stepped out of their roles as marketing executive and underwriter trainee respectively, and purchased in 1987, Muntz & Beatty Inc., a venerable commercial lines insurance company based in Toronto.

A 1994 merger with Guthrie, Keilty, Bickerstaff and a 1998 merger with Hunter Rowell Limited created HKMB (Hunter Keilty Muntz & Beatty). Just a year ahead of the HUB acquisition, HKMB acquired the Toronto and Vancouver offices of Morris & Mackenzie Inc., making HKMB the largest private commercial insurance brokerage in Canada. In 20 years, Belton said, he and his partners had built the firm from one of $3 million in premium to $300 million in premium; which brings us to the HUB purchase.

"We didn't have a shingle out on the business saying that we were for sale but we had been approached. You know there was this real feeding frenzy during 2007 in the brokerage space and we had unsolicited offers from major international brokers, from banks, from insurance companies, from private equity firms. It was just unbelievable, we just kept saying, 'We're buyers, not sellers,' " Belton recalls.

But then Belton and his partners reconsidered. Maybe there was a good buyer out there for them somewhere, they reasoned. After hiring an investment banking firm to investigate the merits of their various credible purchasers, HKMB settled on HUB, which, according to HUB's president of mergers and acquisitions Rick Gulliver, seeks in acquisitions work cultures that it feels will match well with its own.

"We do two types of acquisitions," Gulliver said in January. "We look for platform operations, what we call hubs in regions. The target is typically an Assurex-type broker that has scale, reputation, discipline, corporate structure. And the other type is what we call fold-ins."

HKMB, with a management team that was productive and veteran, clearly fell in the former category.

"We had and have a very strong practice approach and so we have industries with specific practices here at HKMB," said Belton. Those 18 dedicated practice groups cover everything from life sciences to construction to sports and entertainment.

Belton's vetting process told him that HUB would be a good match for his firm. He said executives with companies that HUB had acquired tended to stick around, which he thought was a good sign. It's fairly typical in this industry for producers to move on when they find the culture of their new parent is not something that they can work with.

For example, J. Patrick Gallagher, the chairman, president and CEO of Itasca, Ill.-based Arthur J. Gallagher & Co., admitted to having some M&A related issues in a Feb. 3 conference call with analysts. The brokerage firm had a record year for acquisitions, but evidently saw some defections as a result.

"I will share with you, there is stress and strain in our field," Gallagher said. "Some of those items that you see on our press release on page three are departures that, frankly, we didn't want those departures to occur."

Belton is confident HUB's intentions are not like those of some acquirers (and this isn't directed at Gallager or anyone else specifically) who purchase a lump of business and roll it into an existing office with little concern about retaining talented individuals.

"With HUB the focus is on the key people," he said. "We're the engine that created the business and we're the engine that is going to make the business grow, so it is critical to HUB that we stay engaged and motivated, and I can tell you we are."

March 3, 2009

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