Bermuda company to acquire West Des Moines' American Equity for $4.3 billion
After resisting takeover attempts for several years, the board of West Des Moines-based American Equity Investment Life Holding Co. will cash in on an acquisition offer with a large premium.
The fixed annuity provider disclosed in a news release Wednesday that Brookfield Reinsurance will purchase it in a deal valued at $4.3 billion. Brookfield will pay $55 per share ― well above what another suitor offered in December and a 38% premium over American Equity's stock price before the latest offer.
A spinoff of Canadian private equity firm Brookfield Asset Management, Bermuda-based Brookfield Reinsurance represents a growing trend of alternative investors betting they can turn large profits with long-term retirement insurance contracts. The company has now purchased three insurance providers in the last 14 months.
Brookfield, which already owned a 20% stake in American Equity, will spend about $3.4 billion to obtain the rest of the company.
“This transaction represents an important step in the continued growth of our insurance business, further diversifying, and scaling, our insurance capabilities," Brookfield Reinsurance CEO Sachin Shah said in a news release.
American Equity to remain in West Des Moines
Shah in a letter to American Equity's board last month wrote that he will maintain the company's presence in West Des Moines, where former Statesman Group CEO David Noble launched the company in 1995.
An American Equity spokesperson did not immediately respond to an email asking how many workers the company currently employs at its 6000 Westown Parkway headquarters, but as of last year it had a total workforce of 840. American Equity also has offices in Charlotte, North Carolina; Miami; and New York.
American Equity is among the biggest retirement insurance providers in the country. The company sold $1.37 billion in annuity contracts in the first quarter of 2023, ranking 20th in the industry, according to the trade association LIMRA.
It has been a frequent target for private equity firms, who believe they can achieve higher profits than traditional insurance companies by investing retirement assets in holdings like real estate, energy and credit. Traditional companies invest in safer, but potentially less lucrative, products like government bonds.
Similarly, the private equity firm Apollo Global Management launched West Des Moines-based Athene in 2009. Athene has since grown to become the country's largest annuity provider.
American Equity has been frequent acquisition target
American Equity resisted takeover offers in 2018 and 2019, according to the Wall Street Journal. The company also resisted a 2020 joint bid from Athene and Massachusetts Mutual Life, another top-five annuity provider.
"They're one of the larger ones still available" Piper Sandler analyst John Barnidge said of the American Equity acquisition offers.
Instead of selling the whole company, American Equity's board agreed in October 2020 to enter a reinsurance agreement with Brookfield Asset Management, selling a 20% stake in the business.
The private equity firm then launched its own insurance business, Brookfield Reinsurance, in summer 2021. Similar to Athene's early relationship with Apollo, Brookfield Reinsurance is a separate company from Brookfield Asset Management.
But the companies have an agreement: Brookfield Reinsurance transfers assets to Brookfield Asset Management, which owns businesses dedicated to renewable energy, infrastructure, credit and real estate.
In May 2022, Brookfield Reinsurance made a big splash with the $5.1 billion purchase of the American National insurance company, which provides several lines of business. Brookfield Reinsurance then announced the $1.1 billion acquisition of property and casualty underwriter Argo Group International Holdings in February.
Meanwhile, American Equity changed strategies to align more with the private equity style of investing. Under CEO Anant Bhalla, who joined the company at the beginning of 2020, it entered into several reinsurance agreements to allow alternative investors to handle its annuities.
Deal comes after apparent falling-out between companies
In addition to Brookfield Asset Management, American Equity announced partnerships with private equity firms such as BlackRock and 26North, a startup launched by Apollo Global Management founder Josh Harris. That deal, reached last September, seemed to upset Brookfield Asset Management leaders.
Shah, who gained a seat on American Equity's board as part of the companies' October 2020 partnership, resigned in November. Brookfield Asset Management published a letter to American Equity in December, requesting that the company answer several questions about its relationship with 26North.
American Equity then rejected an offer from Apollo in December to buy the company for $45 a share. Brookfield Asset Management, meanwhile, criticized American Equity's board for approving a new incentive package for Bhalla in late November.
The back-and-forth put Brookfield Asset Management in an awkward position, publicly criticizing a company in which it held a 20% stake. On June 27, Brookfield Reinsurance announced its offer of $55 per share ― well above both Apollo's offer and the $41 a share that American Equity traded at before the announcement.
The deal comes at a good time in the fixed annuity business. Rising interest rates have driven up returns offered on annuities, motivating investment in those products rather than certificates of deposit. American Equity reported $662 million in revenue from January through March, more than three times its revenue during the same period in 2022.
According to a news release, Brookfield Reinsurance will pay $38.85 in cash for each share. The rest of the payment will come in the form of Brookfield Asset Management stock.
"We are pleased to have reached this agreement with Brookfield Reinsurance and believe this transaction provides an excellent outcome for all AEL shareholders, policyholders and other stakeholders," Bhalla said in a statement. "The significant premium that will be delivered to shareholders as a result of this transaction is a testament to our strong performance."
Tyler Jett is an investigative reporter for the Des Moines Register. Reach him at tjett@registermedia.com, 515-284-8215, or on Twitter at @LetsJett. He also accepts encrypted messages at tjett@proton.me.
This article originally appeared on Des Moines Register: Iowa-based American Equity agrees to sell to Brookfield Reinsurance
