Private equity firm hg is to take a stake worth almost $1bn in the insurance broker hyperion, in a deal that values the group at about $5bn including debt and will give it more firepower for acquisitions just as two of its largest rivals merge.

Following the transaction, uk-based hg, which last week sold rival insurance broker a-plan to hyperion in a 700m deal, will own more than a fifth of the privately held company, according to two people familiar with the matter. the a-plan deal is set to propel hyperion to third place in the uk market.

Hyperion, which made 211m in earnings before interest, tax, depreciation and amortisation in 2019, will raise fresh debt alongside hgs equity investment. this will give it a total of $1.5bn for new acquisitions and to invest in technology at a time when the insurance broking sector is rapidly consolidating.

Hg and hyperion declined to comment.

Early next year, aon will complete its acquisition of willis towers watson, making it the number one broker in the industry ahead of mmc, which bolstered its own position last year with the acquisition of london-listed jlt.

There is a gap behind the top two, with companies such as hyperion and ardonagh, another large uk-based insurance broker, buying up rivals to increase their scale and diversify their offerings. the a-plan deal, for example, gives hyperion a big presence in uk high street insurance broking.

Hyperion and a-plan act as intermediaries between insurance companies and their end clients, making money by helping companies and individuals to arrange their insurance coverage.

A-plan was valued at about 270m when hg bought its majority stake in 2015. hyperions acquisition of a-plan last week valued the company at almost 700m.

Insurance broking has been fertile ground for private equity funds. the majority owners of ardonagh are highbridge capital management and madison dearborn partners, while a recent refinancing of the company was backed by ares and kkr.

Hyperions management team and about 1,300 of its employees will remain the largest shareholder group in the company after the deal. general atlantic and the canadian pension fund manager caisse de dpt et placement du qubec also own stakes.