The Accidental Broker
“I never saw this coming,” says Marty Hughes. Nearly 40 years ago, Hughes thought he was interviewing for an accountant position at Chicago-based Mack & Parker.
But he discovered the opening was, in fact, for an account executive, and for Hughes, the expanded opportunity became something of a lesson in realizing his full potential. “It’s incredible what you can accomplish if you’re pushed to do it,” says the Hub International CEO and board chairman. “My horizons expanded so much it’s a little flabbergasting.”
Hughes never saw his career turning out like this. Having started in the industry as a salesman in 1973, he has taken Hub from a startup to one of the largest privately held insurance brokerages in the world in just 12 years. With 2010 revenues of an estimated $762 million, Hub is the 10th-largest insurance brokerage in the world.
Hub now sells property, risk management, life and health, reinsurance, employee benefits, and investment and wealth management products and services in the U.S. and Canada. It also provides risk solutions and consulting services. The brokerage has 5,600 employees in 240 offices and is known for its decentralized organizational approach (corporate headquarters in Chicago oversees 22 regional or specialty brokerages, which it calls hubs). These, in turn, oversee smaller brokerages. Hub is also known for its aggressive M&A strategy. It has successfully completed more than 200 acquisitions, some with revenues approaching $100 million.
Learning to Swim
In 1973, Hughes was just starting out and had a family to support. A lifelong Chicagoan, he had recently earned his accounting degree from the University of Illinois–Chicago and had a job offer from Price Waterhouse in Omaha. But he didn’t want to leave Chicago. So when he was offered a second interview by Mack & Parker for the salesman position, he aced the interview and took the job.
“My father-in-law looked at me and said, ‘Are you nuts?’” Hughes says with a laugh.
Hughes immediately left for the Aetna Casualty & Surety home office sales school in Hartford, Conn., to learn how to sell insurance. “They called it the Aetna Casualty & Surety home office sales school, but there was no sales training,” he says. “It was all the rope in the world you needed, and you could swim or die.”
Hughes swam. Within six years, he was head of Mack & Parker’s commercial sales unit and had an offer to be president of Corroon & Black’s Midwest office.
“This was an opportunity I was shocked they would offer me,” he says. “I was 32 years old, and I was going to take that position. Mack & Parker was a family-owned insurance brokerage, and there were a couple of young Macks in the family. The opportunity for me on a long-term basis didn’t seem to be there, so I told the Mack family I was leaving. But they came back in short order and created an opportunity for me to become a substantial owner of the firm.”
In 1984, he and Ed Mack, one of the Mack family sons, bought the agency.
“It was the classic leveraged buyout because we didn’t have the money to buy it,” Hughes says. “Between the two of us, we came up with about $165,000, and we borrowed the rest of the money. Mack & Parker in those days was about $3 million revenues, so we had to come up with what we didn’t have. We had to sign everything away.
“I think of those days often when we just signed everything they put in front of us. I signed my house. Signed everything I owned away. But we’d been running the business, we knew it and we were confident that it had a lot of opportunity and future in front of it.”
Was that a frightening time?
“No,” Hughes says. “I will say this: In 1984, interest rates were 15%, 16%, and I remember the attorney representing the Mack family turned to them and said, ‘Don’t get too far removed from the business because they’ll never be able to service the debt.’”
Fifteen years later, in 1999, Mack & Parker was sold to the newly formed Hub International, with Hughes subsequently becoming Hub’s CEO, a position he has held since.
The Immigrant Goes M&A
Hub International came into being because Fairfax Financial Holdings, a Toronto, Canada-based insurance holding company, decided in 1998 to provide financial backing for a merger between a small Canadian insurance brokerage known as Hub Group (Ontario) and 10 other Canadian insurance brokerages. The company, Hub Group Ltd., went public, listing on the Toronto Stock Exchange in February 1999.
Fairfax, run by Prem Watsa, believed there was an opportunity in consolidation. Watsa approached Hughes about running Hub, but it was another year before Hughes agreed to come on board.
In October 1999, Hub Group moved into the U.S. market, buying Mack & Parker and naming Hughes as Hub’s CEO. The Hub Group eventually evolved into Hub International, reflecting its expanding market. In 2001, in recognition that most of its business was in the U.S., the company moved its headquarters to Chicago.
The following year, Hub raised $88 million in an IPO and got listed on the New York Stock Exchange. Private investors bought the company five years later for a reported $1.9 billion, and it has remained private ever since.
Hughes attributes Hub’s success to its disciplined approach.
“The way we did acquisitions in those early years—really up until 2005—was we would make the transaction Hub stock and cash,” he says. “A majority was Hub stock—like 60% to 70%. And we would ask the people to lock up their Hub stock and put it in escrow for 10 years.
“When you think about it, that’s a huge commitment to the values and vision of a company. So we didn’t have any problem convincing people to do the right thing because they had really bought into the long-term vision of the company. In the early years, that made a huge difference.”
Tom Motamed, chairman and CEO of CNA, has known Hughes since his days at Mack & Parker and can attest to Hughes’s business acumen. He says Hughes’s negotiating tactics have been a major factor in the company’s success.
“I have had many dealings with Marty through the years,” Motamed says. “He is a great businessman, and you always got the straight scoop. He was tough when he had to be but was always desirous of walking away with a solution. What I admired most about Marty was he always took the time to understand my position and that a win for both of us was important.”
As Hub grew, Hughes says, he realized that the company didn’t need the same degree of long-term commitment from its partners.
“I had concluded by that time you didn’t really need to have that much skin in the game to be committed,” he says. “People could have 20% to 30% skin in the game and still have their head in the game.”
Also around that time, Hughes says, it became apparent the company growth—mainly through M&A—was not sustainable. “Until 2004, our singular focus was on M&A because we needed to build a footprint,” he says. “In late 2004, we changed the structure of the organization. We placed organic growth front and center. We had to demonstrate that we were serious about organic growth and that we were serious about restructuring the company. We could not do well in one at the expense of the other.
“I think that was the turning point for us,” he says. “Going into 2004, revenues were probably like $250 million. We ended 2004 with something like $350 or $360 million. It was a lot of growth. For a young company and a young team who had no public experience, that was a big fundamental change in direction.”
The change did not go unnoticed. In 2006, Hub was approached by Apax, a private investment equity firm, about selling the company. Hub stock was trading around $26 a share at the time, and Apax offered $41.50. The deal was completed in 2007, with Apax buying 48% of the stock, Morgan Stanley 30%, and Hughes and others in the company the remaining 22%.
The global economy collapsed a year later, followed by a string of natural disasters that have affected the entire insurance industry. But Hub persevered.
“It’s been a heck of a good time not to be a public company,” Hughes jokes. “When the fall of 2008 hit, the whole world changed. It was scary, scary time. It’s been a long, hard slog through these four years. It was really difficult. No one knew for sure what the heck was happening. People were laying massive amounts of their employees off. Business was clearly headed south, and we managed our way through it.
“We’ve performed incredibly well over these last four years, despite what has been a difficult market. We’ve done well. We’re having a very good 2011.”
Outside the Office
Hughes grew up in Chicago, the son of a steelworker and the fifth of eight children. All the children attended Catholic grammar school and high school. Hughes graduated from Mount Carmel High School and today serves on the school’s financial advisory board. He previously served as chairman of Assurex International and currently is a board member of The Council. He is a member of the Economic Club of Chicago and the Executives’ Club of Chicago.
He also serves on the board of trustees for the Jane Addams Hull House Association, a 122-year-old nonprofit organization that provides a litany of services for poor families in the Chicago area. Hughes, who has three grown children and eight grandchildren, says he can’t help being moved by the people Hull House serves.
“We went to one of the daycares for a visit, and when we walked into this facility, the kids’ eyes lit up and they ran to us, threw their arms around us, and hugged us,” Hughes says. “I thought, ‘Wow. These poor kids are starved for love and attention.’ And that’s what the Hull House does. It’s incredibly meaningful and incredibly rewarding.”
Stephen Saunders, also a trustee with the association and a founding principal of Eckenhoff Saunders Architects in Chicago, describes Hughes as a “tremendous, tremendous guy” and says Hughes deserves full credit for making the association’s annual fundraiser, the Jane Addams Insurance Legacy Dinner, a giant success.
“Marty has singlehandedly developed this event into our biggest fundraiser of the year,” Saunders says. “He has developed a loyal following in his industry—we’re talking major leaders in the industry—and convinced them to step up in a major way. For people from out of town to step up and support our organization with major contributions is a testament to Marty’s credibility and respect in the industry. For him to stick his neck out like that for us is something because it’s his reputation that’s on the line. People who know him like him, and they are happy to support any cause that he does.”
Louise Smith, the president and CEO of Hull House, credits Hughes with raising several hundred thousand dollars for the organization.
“He’s perceptive, well liked and well respected,” Smith says. “He’s right there, right on it.”
Hughes says it’s important to have a life outside of work.
“One of our (Hub) values is to have balance in your life,” he says. “I think the best people are the ones who do have outside interests and take the time to do things other than work. Have a life. I think people who have a life are much more productive and much more powerful and they’ll be much better employees over the long haul.”
Hughes’s outside interests include golfing, reading and weekends at a house he owns in Michigan.
“I love going up there in the winter,” he says. “It’s incredibly relaxing.”
Hughes says it has been a good life, but there is more to come.
“Am I happy with where I am? Sure. Have I accomplished everything I want to accomplish? I don’t think so,” he says. “I don’t think it’s a healthy thing ever to think you’ve accomplished all you want to. There’s still more to do, lots of opportunity. It’s a wonderful business. It is a very competitive business but something you can really get excited about. You get to meet quality people.
Hughes credits the quality of the team around him for building the company to where it is today and for its current success.
“We built a really great company in a short period of time. We’ve done it the right way. When a company grows as fast as ours, sometimes you wonder if the baby is growing too fast, but the gestation period is one we have managed with a fabulous culture.”
Motamed sums up Hughes in four sentences.
“Marty is a dedicated family man, philanthropic, and a very humble guy in light of his record of accomplishments,” Motamed explains. “I think he is one of those few individuals who never forgot about his roots or the people he worked with on his way up. I like to think of Marty as the real article—the kind of guy you can talk to about anything. He will always make time for you no matter what your status in life is.”
And to think it all started by accident.