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Prudential Buys Assurance, Aids Financial Wellness Business

Zacks Equity Research

In line with its efforts to ramp up the financial wellness solutions business, Prudential Financial 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 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.

Inorganic Growth Story

Prudential considers strategic buyouts as a growth initiative. This year, it acquired Wadhwani Asset Management LLP, a London-based quantitative macro-focused investment management firm, and joint venture partner’s shares of its India-based asset management joint venture, DHFL Pramerica Asset Managers.

Insurers Opting for Inorganic Route

There have been a number of acquisitions in the insurance space of late, given significant capital available therein. Recently, Arthur J. Gallagher AJG acquired Florida-based The Doyle Group, Inc. and its affiliates to leverage its e-commerce marketing that is focused on professional liability programs for independent contractors in allied healthcare professions. Also, Brown & Brown BRO announced that Brown & Brown of Massachusetts, LLC has acquired Poole Professional Companies.

A Stock to Consider

A better-ranked insurance broker is Willis Towers Watson WLTW carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Willis Towers Watson operates as an advisory, broking and solutions company on a worldwide basis. The company provides actuarial support, plan design and administrative services. It came up with positive surprise in two of the last four quarters, with the average being 4.56%.

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