Canadian insurer Great-West Lifeco Inc. is expanding its presence in the U.S. retirement industry with a $4.45 billion deal to buy Prudential Financial Inc.’s retirement business.
On Wednesday, Great-West subsidiary Empower Retirement announced its largest-ever U.S. acquisition, which includes $314 billion in assets and four million customers, by acquiring the full-service retirement business of New Jersey-based Prudential Financial.
The deal, which is expected to close in the first quarter of 2022, will expand Empower’s customer base to 16.6 million participants, with more than US$1.4 trillion in assets under administration in 71,000 workplace savings plans.
“Empower’s acquisition of Prudential is adding significant scale and capabilities that we didn’t have before,” Paul Mahone, CEO of Great-West Life, said in an interview.
Mr Mahon said Empower will now be able to manage workers’ non-qualified deferred compensation plans, typically offered by many US companies to their highest earners.
“This is something we would have outsourced to a third party. Now we will be able to embed that capability in a seamless manner,” he said.
Great-West Lifeco, a subsidiary of Canadian financial giant Power Corp., is on a buying spree as it continues to expand into the US retirement market and participate in that country’s consolidation of recordkeeping defined-contribution retirement plans. wants. Space.
In 2018, Paul Desmaris Jr., then-co-CEO of Power Corp., flagged the US retirement market as a major growth target for the company and said he had set aside $10 billion for future acquisitions.
In June 2020, Empower bought digital wealth manager Personal Capital for an initial US$825 million, which has the potential to add US$175-million if certain growth metrics are met. Three months later, Empower purchased the retirement business of Massachusetts Mutual Life Insurance Company, adding US$167 billion in assets and nearly 2.5 million customers to its roster.
The number of recent acquisitions is “of some concern” to analysts at DBRS Morningstar, as Great-West is still in the process of fully integrating MassMutual’s US retirement business services, which it closed in December, 2020. gave.
“Adding Prudential’s U.S. retirement business increases the operational and execution risks associated with both transactions,” Marcos Alvarez, head of insurance at DBRS, said in a research note on Wednesday. “still, [we] View Great-West as the expertise needed to successfully integrate both transactions.”
Mr Mahon said Empower has a strong track record of successful M&A integration and expects the Prudential deal to add “extremely and promptly” to its bottom line.
According to Great-West, Prudential’s full-service retirement business is expected to contribute approximately US$325 million in after-tax income to Empower by the end of 2023, and result in approximately $180 million in cost savings over the next 24 months. will contribute.
“The average tenure of the Prudential customer base is 17 years, so there are very strong customer relationships, and we think we can convert those strong relationships into empowerment,” said Mr. Mahon.
Prudential’s $4.45-billion total transaction value includes the $2.6-billion of required capital that Great-West needs to set aside to support the business. Great-West Lifeco will fund the deal with approximately US$2.15 billion in debt and cash on hand.
Following the deal, Empower is expected to increase its contribution to Great-West’s earnings to about 30 percent — more than 10 percent of its current base income.
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