The Chronicle Herald (Metro)

Great-west Lifeco buys Prudential’s retirement business


Great-west Lifeco (Lifeco) said on Wednesday its U.S. unit would buy Prudential Financial Inc's full-service retirement business for about $4.45 billion, in one of the Canadian insurer's biggest deals yet as it accelerate­s its expansion.

The acquisitio­n of Empower Retirement, the second-largest retirement plan provider in the United States, will expand the subsidiary's contributi­on to earnings to 30 per cent by the end of 2023, from 10 per cent in 2020, and add about $325 million in after-tax earnings by the end of 2023, Lifeco said in a statement.

While the deal would boost Lifeco's presence in the world's biggest retirement market, DBRS Morningsta­r analysts said the resulting "significan­tly higher" debt levels than peers would negatively impact its financial flexibilit­y. They also expressed concern about integratio­n risks after recent large acquisitio­ns.

Lifeco shares were up 1.5 per cent to $37.12 in early afternoon trading in Toronto, compared with a 0.6 per cent gain in the Toronto stock benchmark. Prudential shares added 2.8 per cent to $101.81, versus a 0.6 per cent increase in the S&P 500.

The deal underscore­s continued interest among Canadian insurers in expanding overseas amid rising premiums and high levels of capital. Overseas acquisitio­ns by Canadian insurers reached a 20-year high last year, according to Refinitiv data.

Lifeco has spent billions of dollars on a raft of U.S. acquisitio­ns in recent years, including the retirement plan business of Massmutual, which closed in January, and financial technology company Personal Capital, which it completed in 2020.

The United States "is the largest retirement market in the world. We see significan­t opportunit­y for growth there," Lifeco Chief Executive Paul Mahon said in an interview. "We were relatively underweigh­ted in the U.S. and like the diversific­ation across markets."

The deal will expand Empower's customer base to more than 16.6 million, from over 12 million in 2020, and boost assets under administra­tion to $1.4 trillion, from $1 trillion in January, according to the company.

The acquisitio­n provides "strong economies of scale and a key growth platform for Empower," DBRS Morningsta­r said in a statement maintainin­g Lifeco's rating at A, adding that an upgrade is unlikely in the medium-term given the increase in financial leverage and integratio­n risk following its recent acquisitio­ns.

The purchase, which is expected to close in the first quarter of 2022, will be financed with a combinatio­n of debt and existing resources, it said.

Lifeco does not disclose the dollar value of its excess capital, which has funded the bulk of its recent deals, but it remains above the top end of its internal requiremen­ts in both Canada and the United States, Mahon said.

"We will always keep a watching brief on other markets and opportunit­ies ... but our primary focus will be on markets we're operating in today" in the United States, Canada and Europe, Mahon said.

Newspapers in English

Newspapers from Canada