Sun Life Financial announced Oct. 3 that it has entered into a definitive agreement to acquire DentaQuest, the largest provider of Medicaid dental benefits in the United States, for US$2.475-billion or approximately C$3.1-billion. 

DentaQuest has 2,400 employees serving more than 33 million members in 36 states. The acquisition more than doubles the company’s U.S. employee benefits business by revenues. The company adds that the deal will position it as a leader in providing government dental benefits.

“We’re excited about the acquisition of DentaQuest and expanding our leadership into the U.S. dental benefits space,” says Sun Life’s president and CEO, Kevin Strain. “The addition of DentaQuest is consistent with our strategy to focus on health and group benefits in the U.S.” The company adds that dental benefits are the second most popular benefit after health insurance. They also add that the segment is growing in importance because of the correlation between oral and overall health.

“The acquisition is expected to be immediately accretive, adding approximately C$0.17 to underlying earnings per share and 42 basis points to underlying return on equity in 2022 on an annualized basis. In 2024, upon realization of expense synergies, Sun Life expects the acquisition to add approximately C$0.24 to underlying earnings per share and 50 basis points to underlying return on equity.” The company adds that the transaction, expected to close in the first half of 2022, will be financed using a combination of cash and debt.

Ratings agency, AM Best weighed in on the transaction saying that ratings for Sun Life and its subsidiaries remain unchanged following the announcement.

“Sun Life expects to fund the acquisition with a combination of cash (40 per cent) and subordinated debt (approximately 60 per cent). Sun Life’s financial leverage is expected to remain well within AM Best guidelines following the acquisition at approximately 28 per cent,” they write. “AM Best notes that Sun Life had expanded its presence in the U.S. dental insurance space previously with the acquisition of Assurant, Inc.’s employee benefits business in 2016. The acquisition of DentaQuest will increase the company’s scale and market share in the U.S. dental insurance market significantly, while enabling it to access the growing government programs segment.”