Phoenix Group has bought closed book company Sun Life UK from Sun Life Financial for a cash consideration of £248m.
The acquisition is subject to regulatory approvals and is expected to complete in Q1 2023.
In a statement today (4 August), Phoenix said the acquisition is expected to deliver c.£470m of incremental long-term cash generation, with approximately 30% of this cash generation to emerge in the first three years.
Sun Life UK operates a predominantly outsourced business model with the majority of its policy administration already undertaken by Phoenix's strategic outsourcing partner TCS Diligenta, which supports a simplified operational integration programme.
Phoenix further said it was targeting the delivery of c.£125m of integration synergies, net of costs, from cost efficiencies and capital management actions, representing c.50% of the consideration paid.
"In line with our strategy to diversify our credit portfolio, we have also agreed a new long-term strategic asset management partnership with Sun Life that complements our existing relationships. This will further enhance and diversify our liquid and illiquid credit origination capabilities in North America, building on Sun Life's strong presence in the region", it said.
Phoenix also highlighted that Sun Life UK represents c.£10bn of the estimated £480bn "UK Heritage M&A market".
"This is our first acquisition to be financed solely from existing cash resources, reflecting the surplus cash and capital available for reinvestment into growth.
"Such additions to our Heritage business can deliver significant shareholder value by leveraging our market-leading expertise in delivering accretive M&A and realising material integration synergies. The Board continues to see M&A as a strategic priority going forward and a core part of the Group's growth strategy."
Phoenix Group CEO, Andy Briggs said: "The acquisition of Sun Life UK is highly attractive for Phoenix Group and demonstrates the significant value that smaller cash funded M&A transactions can deliver for our shareholders. We expect this acquisition to deliver incremental long-term cash generation of around £470 million, inclusive of cost and capital synergies. This supports a 2.5% dividend increase, in line with our ambition to sustainably grow our dividend over time.
"We welcome the colleagues who will join us from Sun Life UK, and as the UK's largest long-term savings and retirement business with a strong track record of closed book integrations, we look forward to offering a safe home for Sun Life UK's customers over the long term.
"I am pleased that we will also be able to offer Sun Life UK's customers access to our broad range of Standard Life products in our Open division."
Sun Life UK operates a life company, Sun Life Assurance Company of Canada (UK) Limited, which is a closed book with life, pensions and annuity business. It does not write new business, other than offering increments on current policies to existing customers on a passive basis.
At 31 December 2021, Sun Life UK had c.480,000 in-force policies and c.£10bn of assets under administration, of which c.£2.5bn are annuities that will remain reinsured with Sun Life.
