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Alternative Investment

Sun Life (SLF) to Acquire AAM, Boost Alternative Products

Sun Life Financial Inc. SLF has agreed to acquire a 51% interest in Advisors Asset Management, Inc. (AAM) for $214 million (C$280 million), subject to customary adjustments with a put/call option to acquire the remaining 49% at the beginning of 2028. AAM will be acquired through SLF’s institutional fixed income and alternatives asset manager, SLC Management.

The transaction, following the fulfillment of customary closing conditions and regulatory approvals, is projected to be closed by the first half of 2023. Following the acquisition, AAM will become the U.S. retail distribution arm of SLC Management.

Founded in 1979, AAM is a leading independent U.S. retail distribution firm. AAM provides access to UITs, open- and closed-end mutual funds, separately managed accounts (SMAs), structured products and fixed-income markets, as well as portfolio analytics and exchange-traded funds (ETFs).

AAM offers solutions and products to financial advisors at wirehouses, registered investment advisors (RIA’s) and independent broker-dealers. As of Jul 31, 2022, the brokerage and advised business at AAM represents around $41.4 billion (C$55 billion) in assets.

Per the transaction, Sun Life has committed to invest up to $400 million to launch SLC Management alternative products for the U.S. retail market that will be distributed by AAM.  

There is a growing demand for alternatives from the high-net-worth (HNW) and ultra-high-net-worth markets in the United States. The acquisition of AAM will enable SLF to extend its top-notch alternative investment capabilities to new clients. The deal will also bolster the list of investment solutions that AAM can offer to the U.S. financial advisor market. Following the deal, AAM will exercise its rights to market and promote SLC Management’s specified alternative investment products to the U.S. retail market.  Thus, the transaction is expected to boost the alternative investment capabilities of SLC Management.

The transaction will also enable SLC Management as well as its affiliated investment managers, BentallGreenOak, Crescent Capital Group and InfraRed Capital Partners, to provide their investment strategies to the U.S. HNW market.

Scott Colyer, CEO of Advisors Asset Management, stated, “There is significant potential in the alternatives space to deliver solid returns for the clients, which has been AAM’s mission as a trusted resource for financial professionals for many years.”

As far as AAM is concerned, this buyout will expand its product portfolio and include a wide range of alternative products in commercial real estate, private credit and infrastructure.

Inorganic Growth Story

Sun Life considers acquisitions a prudent approach to ramp up its growth profile. Strategic buyouts have positioned it as the second-largest dental network in the United States, consolidated its footprint in Vietnam, Indonesia and India, and expanded its wealth business in Hong Kong.

In June 2022, this Zacks Rank #3 (Hold) insurer closed the DentaQuest buyout in its efforts to poise Sun Life U.S. as a leader in health and benefits. The acquisition is expected to bring Sun Life U.S.’ total annual benefits revenues to more than $7 billion. The buyout of DentaQuest is expected to increase the scale of Sun Life’s U.S. business, which will poise the insurer to provide better outcomes for clients. It will expand the acquirer’s leadership in the U.S. dental benefits space.

In April 2022, Sun Life announced the expansion of its strategic partnership with CIMB Niaga in Indonesia. This extended partnership will increase distribution and product offerings starting in 2025. This transformational deal will drive improved market positioning and growth.

Price Performance

Shares of this third-largest insurer in Canada have lost 15.4% in the past year, compared with the industry’s decline of 18.1%. Sun Life’s focus on the expansion of its Asia business and global asset management business, favorable business mix, strategic acquisitions and solid capital position should help the stock sustain the momentum.

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Other Acquisitions in the Same Space

Given the insurance industry’s adequate capital level, players like Arthur J. Gallagher & Co. AJG and Marsh & McLennan Companies, Inc. MMC have been pursuing strategic mergers and acquisitions.

Arthur J. Gallagher & Co. acquired Watkins Insurance & Benefits, LLC, doing business as Watkins Group — Insurance & Benefits Specialists, in August 2022. AJG boasts an impressive inorganic story. AJG has a strong merger and acquisition pipeline.

Arthur J. Gallagher’s revenues are geographically diversified, with strong domestic and international operations and a compelling product and service portfolio. A solid capital position supports AJG in its growth initiatives and the company remains focused on continuing its tuck-in mergers and acquisitions.

In September 2022, Marsh & McLennan Companies, Inc.’s subsidiary, Marsh McLennan Agency (MMA), acquired a leading independent agency, Steinberg & Associates, Inc., to expand and enhance its personalized client service approach within the Mid-Atlantic region.

Acquisitions are one of the core growth strategies of Marsh & McLennan, helping it expand product offerings, benefit customers and strengthen its global presence.

Stock to Consider

A better-ranked insurer in the insurance industry is Arch Capital Group Ltd. ACGL, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of Arch Capital surpassed earnings estimates in three of the last four quarters and missed in one, the average being 33.64%.

The Zacks Consensus Estimate for Arch Capital’s 2022 and 2023 earnings has moved 1.3% and 2.8% north, respectively, in the past 30 days.

Shares of AJG, MMC and ACGL have gained 24.8%, 1.9% and 15.9%, respectively, in the past year.

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Marsh & McLennan Companies, Inc. (MMC): Free Stock Analysis Report
 
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Sun Life Financial Inc. (SLF): Free Stock Analysis Report
 
Arch Capital Group Ltd. (ACGL): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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