Prudential Financial Inc. is planning to expand the capabilities of its latest acquisition, Assurance IQ, into international markets.
Prudential announced Sept. 5 that it was buying the technology-enabled insurance product distributor for an upfront payment of $2.35 billion in cash, debt and stock, with up to a further $1.15 billion payable if Assurance hits certain financial targets over time. Prudential expects the deal to close early in the fourth quarter.
Speaking to analysts on a conference call about the deal, Chairman and CEO Charles Lowrey said Prudential and Assurance would look at both developed and emerging markets, but did not give a time frame for looking at international growth.
"The first priority is to concentrate on expanding quickly in the U.S. That is job 1, day 1," he said, adding that international opportunities would be evaluated "when we're ready."
Assurance combines technology and human agents to distribute products such as life, health, Medicare and auto insurance to U.S. consumers. The products come from a series of third-party insurers.
Assurance founder and CEO Michael Rowell told analysts on the call that Assurance was expecting revenues of "a little under $500 million" for 2019, after reporting 2018 revenues of $120 million. Prudential expects Assurance to continue growing quickly: Excluding any benefit from international expansion or adding Prudential products to its platform, Prudential projected that Assurance will grow its annual revenues to around $700 million by 2020 and around $1 billion in 2021.
Although these projections exclude any boosts Assurance may get as part of the Prudential group, Andy Sullivan, Prudential's CEO of workplace solutions, told analysts that because of the business Prudential will bring to the platform "we are going to accelerate the growth they would have seen otherwise."
But the company is not yet ready to quantify any additional revenues that might arise as a result of the acquisition. Prudential CFO Ken Tanji told analysts that the priority was executing on Assurance's existing business model. He said: "We prioritize revenue synergies second, and those will be coming later out."
Sullivan also played down concerns that Prudential ownership might spook some of the other insurance providers on Assurance's platform, arguing that the business model "is tapping into an underserved segment of the market" and is "creating greater volumes for all." He added: "We think the degree of volumes running through the platform will remain very attractive to all providers, even those that might consider Prudential as a competitor."
The insurer expects the acquisition to add 10 cents to EPS in 2020 and between 30 cents and 35 cents in 2021, and be "modestly accretive" to return on equity. Prudential reported full-year 2018 EPS of $11.69 on an after-tax adjusted operating income basis, and $9.50 on a net income basis.
Prudential shares were up 2.5% to $81.62 as of just before 11:30 a.m. ET. In addition to the acquisition, the company also said its board had approved an additional $500 million of share repurchase authorization, taking the total for full year 2019 to $2.5 billion.
