Hub Financial has acquired the shares of Daystar Financial Group, an MGA with offices in in Vancouver, Calgary, Winnipeg, Toronto and Mississauga.
Daystar co-CEO Keith Brown says the move makes sense, given emerging MGA compliance requirements that would have required his firm to make significant technology investments.
Meanwhile, he says Hub Financial benefits from Daystar’s experience working in the high-net-worth segment of the market, as well as the training, recruitment and development Brown and co-CEO Rene Pereux have fostered at their firm.
“We also have domestic market brokers who are taking care of mom-and-dad businesses and not in HNW markets [and they’ll] get the benefit of Hub’s skills there,” he adds. “Rene and I are staying on to make sure that happens. We both have transitionary responsibility to 2,000 advisors who do business with us, so we have to deliver those relationships to Hub.”
Brown, who says he’ll be staying on for at least three years as part of the deal’s terms, says Daystar agents will benefit from Hub’s leading-edge technology (including systems that help advisors segment their clients and do term conversions and critical illness), its wider agent support structure, and more staff providing service to advisors.
Pereux will also be staying on with Hub as an independent consultant, and both former co-CEOs will work with Terri DiFlorio, Hub’s president.
Agents will also gain from Hub’s standing contracts with insurers Daystar currently isn’t working with. “So that will give access to some companies that aren’t on our radar,” says Brown.
Hub also has a robust investments team. “We had a lot of seg fund assets under management and we felt we could do better,” says Brown. “Hub has 16 people serving that area, where we had five or six.”
More M&A to come
Terri DiFlorio, President, Hub Financial, says “The industry’s changing very quickly and people have…tough decisions to make. We’ve worked hard to position ourselves well for the compliance changes we saw coming, and I think that will pay off in spades. And because we made some of the harder choices early on, it means that now, when some other players are in chaos, it’s just business as usual [for us].”
DiFlorio says she’s had many conversations with carriers in recent months and a common theme is their intention to trim down the number of MGAs they work with.
“Carriers are putting more pressure on volume requirements and that’s going to mean some of these smaller agencies are going to need to work together, or perhaps consider an acquisition.”
But she stresses it isn’t necessary to be an industry behemoth to stay on the list.
“There has to be a certain amount of volume, but once they reach that threshold what [the carrier] will look to is the relationship with principals, technology investments [and] compliance infrastructure. I think a mid-sized MGA could easily put those things in place if they wanted to.”
She adds M&A talk has spiked recently. “I have probably had twice as many calls in the last 60 days, people saying, ‘Can we talk about an acquisition’…as I had in the prior six years.”
What happens now
Initially, there’s no re-contracting of existing Daystar advisors, although Brown expects they’ll eventually sign a Hub contract. He’s reviewed the terms of those contracts and didn’t see any problems.
“Often MGAs don’t have contracts with all their advisors,” he says.
Brown says most of the 50-plus staff will be retained; everyone in the North York and Mississauga, Ont. offices will remain. The only office where staff chose not to go to Hub was in Calgary. Two people will be leaving the Vancouver office, along with three in Alberta and three in Winnipeg.
Geographically, Hub picks up the prairies from Daystar, where it didn’t have a large presence. “We’re strong in Winnipeg and Saskatchewan,” says Brown.
He adds Daystar had been courted by several suitors and the firm’s priority was an acquirer who would retain the team.
“If we were going to sell, we needed to go with someone who could handle all our brokers and keep the offices where it made sense,” he says. “Commitment to training and growing the agencies really mattered to us.”
He adds selling to some of the potential buyers would have led to one firm being considerably bigger than other larger players. This way, the MGA world is a bit more balanced — and Brown says that’s healthy for the industry.
For his part, Brown adds the acquisition lets him focus on what he’s good at – train and develop agents. Further, he notes he and Pereux are also producers and work directly with clients: a key reason Daystar has been successful in HNW markets.
“I won’t have any financial responsibilities, because we sold all our shares to them. They own the entire company. And I’ll no longer be managing the staff,” he says. “We’ll be responsible for working with the agency. We came out of the career agency system, so we’ll be attracting and retaining advisors and helping them do business.
“Most of the top people are here because Rene or I have a relationship with them. So I’ll be training and mentoring and keeping them with Hub.”
Daystar was founded in 2002. In 2012, RBC Insurance kept Daystar and Hub Financial among its MGAs when it severed contracts with 69 agents.
Hub Financial’s U.S. parent company, Hub International, has made 19 acquisitions this year, including Daystar. Other Canadian buys include Pallister Insurance Brokers (Portage la Prairie, Man.), The Dorsey Group (Brantford, Ont.), Southeastern Insurance Services (Steinbach, Man.), Nunavut Insurance Brokers (operating in the Territories), Complete Brokerage Services (Richmond, B.C.) and STRATA Benefits Consulting (Winnipeg, Man.).