Great-West Lifeco’s U.S. subsidiary buys Prudential’s retirement business for $4.45B

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This article was published 22/07/2021 (1841 days ago), so information in it may no longer be current.

Less than a year after it paid more than $4 billion for a large U.S. retirement business, Great-West Lifeco’s U.S. subsidiary has done it again.

Denver-based Empower Retirement will pay $4.45 billion for the retirement services of Prudential Financial, which includes more than four million participants in 4,300 workplaces and US$314 billion in assets under administration (AUA).

It pushes the number of Americans whose retirement plans are managed by Empower to more than 16 million. By comparison there are about 15 million people employed in all of Canada.

In an interview with the Free Press, Great-West Lifeco’s CEO Paul Mahon said the company is excited about the growth potential in that U.S. retirement services business.

Empower was already the second largest player in that U.S. market after spending billions acquiring the retirement services of J.P. Morgan in 2014 and Massachusetts Mutual Life Insurance Company in 2020.

The latest deal brings Empower’s AUA to $1.4 trillion, more than twice the size of the third largest player in the U.S.

Mahon said Great-West’s investment in digital technology and automation, has helped enable the company to make such large acquisitions.

As well, Empower’s organic growth rate — winning new business and growing participation numbers in existing business — is 2.5-to-three times the industry average.

Mahon said the deal will not affect the company’s Canada Life operations in Canada and its 3,300 employees in Winnipeg other than the collaboration that occurs among the company’s far-flung operations. Great-West Lifeco also has significant operations in Europe.

“This deal reinforces Empower’s leadership position in the U.S. retirement market increasing,” Mahon said. “It leverages Empower’s strong track record of building scale through acquisitions, its proven integration expertise and moreover it fully aligns with Great-West Lifeco’s value creation priorities of workplace extension and leveraging digital capabilities.”

Over the past several years Great-West Lifeco has made significant investments in digital technology. Including the normal maintenance capital expenditures and its development of cutting edge automation processes, Mahon says the company spends more than $1 billion per year on digital technology.

“When we do acquisitions like Prudential or MassMutual we don’t want to bring clients over one at a time,” said Mahon. “We want to have sophisticated automated routines to bring customer information and financial information over in a seamless way such that we can move the clients from the old system into a new environment.”

Great-West Lifeco Inc. also spent about US$800 million last year acquiring U.S. investment manager Personal Capital, a hybrid wealth manager that combines a digital experience with personalized advice delivered by investment advisers. Mahon credits that acquisition as contributing to Empower’s superior performance and said it is a tool that other Great-West Lifeco’s operating companies can also deploy.

This capital intensive business has recently been the subject of a wave of consolidations that Empower has been at the centre of over the past few years and much of it is being driven by enhanced technological capabilities.

Charles Lowrey, chairman and CEO of New Jersey-based Prudential, said, “In Empower, we have found a partner that, like Prudential, is passionate about expanding financial opportunity for more people, and that has the scale and expertise to ensure the long-term success of the full-service retirement business.”

The deal is expected to produce about $180 million in annual operating savings over the next two years and contribute approximately US$325 million in annual after-tax earnings by the end of 2023. Empower’s contribution to Great-West Lifeco’s earnings is expected to grow to 30 per cent by the end of 2023.

The acquisition will be financed with a combination of traditional debt, derivatives and existing resources and is expected to close in the first quarter of 2022.

While investors endorsed the deal sending Great-West Lifeco’s shares up about 1.5 per cent on Wednesday, it does leave it particularly leveraged, such that Mahon said the company is “not likely to be doing any other significant transactions” in the near term.

He said, “We’re very excited with this deal. It is a great growth opportunity. But over the next couple of years we will need to be very disciplined taking care of clients so we have top-notch service and making sure we deliver on our integration goals.”

 

martin.cash@freepress.mb.ca