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The Globe and Mail

Onex unit expands U.S. insurance footprint

A trolley car passes a Wells Fargo Bank in San Francisco, the company’s headquarters. An Onex subsidiary is buying 42 of Wells Fargo Insurance’s U.S. brokerage and consulting locations.

Paul Sakuma/AP

Private equity giant Onex Corp.'s U.S. insurance broker subsidiary is making good on its promise to build through acquisitions.

Valhalla, N.Y.-based USI Insurance Services is on its way to acquisition No. 14 with a deal to pick up 42 of Wells Fargo Insurance's brokerage and consulting locations across the United States. These are smaller regional offices outside of San Francisco-based Well Fargo's 55 other offices in its key markets.

Robert Le Blanc, an Onex senior managing director, has voiced USI's commitment to build the business through acquisitions since Onex bought the company for $2.3-billion (U.S.) in late 2012.

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"This acquisition is entirely consistent with our investment thesis for USI," Mr. Le Blanc said in a statement Monday.

Onex researched the insurance-brokers sector for seven years before making the initial acquisition of USI – the firm said it saw potential in middle-market commercial accounts in the US. The mid-market is also where Wells Fargo has also focused.

The insurance brokerage business may not seem like a high-growth sector, but its ability to generate free cash flow appealed to Onex, and USI's track record as an acquirer sweetened the deal. USI is the third largest privately-held insurance broker, and the 14th largest insurance brokerage firm in the world.

Several other private equity groups have also shown interest in acquiring cash-generating insurance brokerage businesses.

Hellman & Friedman flexed its muscle in August last year when it bought Canada's largest insurance brokerage, Hub International Inc., for $4.4-billion. Prior to that, investment firm KKR & Co. bought specialty insurance brokerage firm Alliant Insurance Services Inc. for $1.8-billion from private equity group Blackstone Group.

The Wells Fargo Insurance acquisition will be made with an undisclosed amount of USI debt and cash on hand, without any additional investment by USI's parent Onex Partners III fund. That fund was nearly 90-per-cent invested as of Onex's last report in November, 2013.

Wells Fargo also still likes the insurance business. But the company wants to "focus on larger markets where we can partner more closely with the bank to serve more of our core middle and upper-middle market customers," according to a statement from Laura Schupbach, head of Wells Fargo Insurance, last week.

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