Great-West Lifeco announced July 21 that its U.S. subsidiary, Empower Retirement,has reached a definitive agreement to acquire Prudential Financial, Inc.'s full-service retirement business.
The deal has a total transaction value of approximately C$4.45 billion. The value includes approximately C$2.6 billion of capital to support the business. Subject to regulatory approvals, the transaction is expected to close in the first quarter of 2022.
Prudential's full-service retirement business covers 4,300 workplace savings plans, about four million participants and US$314 billion in assets under administration. Lifeco says the acquisition will increase Empower's base to over 16.6 million participants, 71,000 workplace savings plans and approximately US$1.4 trillion in assets under administration.
Will add scale and capabilities
"Empower's acquisition of Prudential's full-service retirement business will add significant scale and capabilities, further solidifying its leadership position in the world's largest retirement market," said Paul Mahon, President and CEO, Great-West Lifeco. "The Empower team has a strong track record of successful M&A integration and is well-positioned to deliver for stakeholders on this transaction."
Empower's contribution to its Great-West Lifeco's earnings is expected to grow to 30% by the end of 2023, “shifting the overall earnings profile with strong cash generation from this scalable business with high growth potential,” says Lifeco.
Following the announcement, DBRS Morningstar confirmed Great-West Lifeco’s Issuer Rating and Debentures rating at A (high) and the confirmed the ratings of Great-West’s subsidiaries at their current levels.
A key growth platform
The ratings confirmation reflect DBRS Morningstar’s view that the acquisition “is aligned with Great-West’s strategic plan to expand its wealth management and retirement service business in the United States, by providing strong economies of scale and a key growth platform for Empower,” stated the ratings agency. It added that the acquisition “will further enhance Empower’s strong market position as the second-largest record keeper in the U.S. retirement industry.”
DBRS Morningstar added, however, that it was of some concern that Great-West is still in the process of fully integrating the acquisition, which closed last December, of MassMutual’s U.S. retirement business services. “Adding on Prudential’s U.S. retirement business increases the operational and execution risk associated with both transactions. Nonetheless, DBRS Morningstar views Great-West as having the necessary expertise to successfully integrate both transactions.
