GLEN ALLEN, Va.—A familiar family name re-entered the middle-market insurance brokerage space last week, aiming to become a dominant East Coast player through an aggressive growth-by-acquisition strategy.

However, Hilb Group L.L.C.—led by Hilb Rogal & Hobbs Co. founder Robert H. Hilb and his son, former HRH Vp Robert J. Hilb—is likely to face challenges in executing its strategy due to current market conditions, some observers say.

The elder Mr. Hilb, who retired from HRH in 1999, will serve as chairman of Hilb Group, while the younger Mr. Hilb will be president and CEO. The move comes two years after Willis Group Holdings P.L.C. acquired HRH in a $2.1 billion deal. While Willis briefly renamed its North American operations Willis HRH, the name reverted to Willis North America last year.

“We see a really underserved niche in the middle-market space and think there is tremendous opportunity here,” said Robert J. Hilb. Potential customers will be defined more by the “absence of a risk manager” rather than by revenue size, he said. The firm intends to differentiate itself by offering a high degree of specialization, he said.

The Glen Allen, Va.-based firm announced its first acquisitions last week, buying Bay Shore, N.Y.-based retail agency J.J. Jerome Associates/EAI Inc.

In addition, it acquired the employee benefits and management liability book of business of Charlotte, N.C.-based broker Joseph Caruso, who before going independent was with Willis in New York. Mr. Caruso will lead Hilb Group's financial services practice, the company said.

Combined, the acquisitions total about $3.5 million in annualized revenue. Terms of the deals were not disclosed.

Despite difficult market conditions that have put a damper on M&A activity in the brokerage space, the company is actively pursuing acquisitions and has a “very strong pipeline” of potential deals, many in due diligence, the younger Mr. Hilb said. Initially, the company will focus on the East Coast, where it aims to be a “dominant player” in the space.

“There are a lot of agencies out there with great specialties in their geographic regions, and we've seen from our prior experience that you can really leverage that” he said. In addition, “many firms of a certain size aren't getting a lot of attention from the other aggregators out there,” he said. Hilb will consider large and small acquisitions, he said.

In addition, Hilb hopes to attract potential sellers by offering their principals the opportunity to stay on board and manage the business. “We really view this as an entrepreneurial opportunity,” he said.

Several observers said, at least in the short term, Hilb's aggressive acquisition strategy is going to be a challenge.

“The pool of potential sellers is very slim,” said Bobby Reagan, president and CEO of Reagan Consulting Inc. in Atlanta. “Even if the seller is interested, it's going to be hard for a buyer to come up with a compelling offer,” he said.

The soft insurance cycle combined with the soft economy have resulted in reduced earnings and, therefore, lower valuations for most agencies, Mr. Reagan said. And with deal terms and structures typically based on a multiple of the company's earnings, “I expect a lot of sellers to wait until the market turns, until they get better valuations,” he said.

Hilb, however, could get “more aggressive in its multiples and deal structure” in order to overcome seller resistance, Mr. Reagan said. In addition, there might be some agencies under pressure that are looking for an exit strategy, observers said.

Hilb is also looking to grow through acquiring talent or specialized teams of producers, a strategy that “makes sense if they have sufficient capital,” said Timothy J. Cunningham, a partner with OPTIS Partners L.L.C. in Chicago.

Mr. Hilb declined to comment on investor support, saying only that “it has exceeded our expectations.”

Hilb's entry into the middle-market space comes at the same time that some large brokers are pushing into that market. In 2009, Marsh launched the Marsh & McLennan Agency L.L.C. to serve the needs of companies that generally have less than $100 million in revenue, and the world's largest broker has made several acquisitions in that space.

Mr. Hilb said he was “not too worried” about competition from the big brokers or from other middle-market brokers. “We think there's plenty of opportunity to go around,” he said.

Although Hilb Group does not itself have a track record yet, “we have great history,” he said.

The elder Mr. Hilb spent decades buying agencies and brokerages across the country and helping to build HRH into the nation's sixth-largest insurance brokerage before it was bought by Willis, observers said.

“They really do have a great name, with a lot of credibility and experience behind them,” said Kevin Donoghue, managing director of Mystic Capital Advisors Group L.L.C. in New York. “I expect this to work to their advantage and help them be successful,” he said.

In building HRH, the elder Mr. Hilb “demonstrated his ability to sell people on his vision,” said Mr. Reagan.

In addition, Mr. Donoghue believes that potential sellers whose principals want to stay on board and continue to run the agency will be attracted to the Hilb model, he said.

In addition, several observers said they anticipate the M&A activity to pick up in the second half of the year as market conditions improve.

As for the timing of the venture, “it takes time to build momentum, so if they start a dialogue now and get their story out there, they will probably be in a good position” when the market turns, Mr. Campbell said.

Despite the protracted soft insurance market and weak economy, Hilb is counting on the market turn to accelerate growth. “If either one of these stabilize, then we think there will be a real tail wind,” he said.