In line with its efforts to ramp up the financial wellness solutions business, Prudential Financial (NYSE:PRU) has acquired Assurance IQ, Inc. The acquirer paid $2.35 billion, plus an additional earnout of up to $1.15 billion in cash and equity, subject to Assurance achieving long-term growth objectives.
With this move, Assurance now becomes a wholly-owned subsidiary of Prudential (LON:PRU) under the U.S. Businesses division.
Financing of the Deal
Prudential paid the purchase consideration using a combination of cash, debt financing and equity.
Rationale Behind the Transaction
Assurance is a leading consumer solutions platform for health and financial wellness needs. Thus, the addition of Assurance to Prudential’s portfolio adds established direct-to-consumer channel to penetrate into the underserved mass market.
Also, Assurance’s rapid-growth model offers compelling economic advantages with low fixed costs and capital requirements that generate higher margins and a high degree of scalability.
Prudential expects the addition of Assurance to be moderately accretive to its bottom line and return on equity from the next year. The acquisition will help generate cost savings between $50 million and $100 million, in addition to expected margin expansion of $500 million by 2022.
Prudential projects mid-to-high single digit earnings growth in the U.S. Financial Wellness business in the intermediate term. Thus, this buyout should help the company in achieving its target.
Shares of this Zacks Rank #3 (Hold) premier individual life insurance company in the United States gained 7% since the announcement of the transaction on Sep 5. The industry has declined 1.2% in the said time frame. The high-performing asset management business, deeper reach in the pension risk transfer market, improved margins in the Group Insurance business, solid international operations, strong balance sheet and an efficient capital management should help the stock retain the momentum.
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