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Prudential (PRU) to Buy Minority Stake in Alexander Forbes

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Prudential Financial Inc. PRU and LeapFrog Investments Group, Ltd. jointly announced the purchase of a minority interest in Alexander Forbes Group Holdings Limited. The pending strategic buyout, upon completion, will aid this Zacks Rank #3 (Hold) insurer to penetrate high-growth financial services markets in Africa.

Alexander Forbes Group Holdings is a leading provider of financial advice, retirement, investment, and holistic wealth management services in South Africa. Thus, the acquisition will help the acquirer expand in Africa and establish a presence in South Africa.

Prudential Financial, in partnership with LeapFrog Investments, has invested in market-leading companies across the African continent, including Enterprise Group in Ghana and ICEA LION in Kenya, over more than six years.

Per Pavan Dhamija, PRU’s regional president (Africa, India, Indonesia, and Business Development), ”This transaction underscores Prudential’s continued focus on Africa as a strategically important growth market and our vision to be a global leader in expanding access to investing, insurance, and retirement security. We identified Alexander Forbes as the market leader in South Africa best capable of advancing our vision and strategy.”

On the other hand, leveraging PRU’s leading position in the universal, term and variable life insurance and expanding Retirement business, Alexander Forbes will be able to provide retirement and investment benefits solutions in Southern Africa.

Prudential has a strong international presence that gives it more organic growth opportunities than its peers and thus remains upbeat about expanding its international footprint with a focus on directing earnings mix to higher-growth markets. Its presence in Japan offers attractive opportunities to capitalize on protection products and retirement needs and has historically generated ROE in the 20% range. Its business in Brazil has gained sufficient scale and should become an important contributor to earnings growth in the international division over the next few years. PRU also expanded in Malaysia, which is an attractive market, with low life insurance penetration, a well-developed regulatory environment and long-term growth potential. Hence, the recent transaction testifies PRU’s strategic focus.

Shares of PRU have gained 6.5% year to date, outperforming the industry’s increase of 1.8%. A high-performing asset management business, deeper reach in the pension risk transfer market, improving margins in Group Insurance business, leading position in the universal, term and variable life insurance and expanding Retirement business should help shares trend higher.

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Other Insurers Pursuing Mergers and Acquisitions

Given the insurance industry’s adequate capital level, players like Brown & Brown, Inc. BRO Arthur J. Gallagher & Co. AJG and Aon plc AON are pursuing strategic mergers and acquisitions.

Brown & Brown has agreed to buy Global Risk Partners Limited to strengthen the acquirer’s presence in the United Kingdom and Ireland, accelerate growth on a global scale and expand market relationships. BRO intends to make consistent investments in boosting organic growth and margin expansion. Its solid earnings have allowed the company to expand its capabilities, with the buyouts extending the company’s geographic footprint.

Arthur J. Gallagher acquired Romford, Essex-based Devitt Insurance Services in the United Kingdom. The acquirer’s impressive inorganic story features a strong merger and acquisition pipeline with about $200 million revenues associated with nearly 35 term sheets either agreed upon or being prepared.

Aon purchased the actuarial software platform Tyche to boost its insurance consulting capabilities for clients. AON spent $14 million on buyouts last year and has sealed many acquisition deals over the past few years. Its acquisitions mainly aim at expanding its health and benefits business, flood insurance solutions, and risk and insurance solutions operations.

Shares of AON has gained 6% year to date while that of BRO and AJG have lost 1% and 1.4% respectively over the same time frame.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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Prudential Financial, Inc. (PRU) : Free Stock Analysis Report

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