Sun Life Financial announced it will pay $2.48 billion for DentaQuest, a U.S. dental benefits provider, in its biggest purchase in two decades, becoming the latest cash-rich Canadian insurer to seek expansion outside of its home market.
On an analyst call today, executives at Canada's second-largest life insurer said the deal to acquire the United States' second-largest dental benefits provider, with more than 33 million members, will contribute nearly $100 million to its U.S. underlying income in the first full year following closing.
The purchase was revealed late Sunday by Sun Life.
Sun Life shares surged to C$66.20 in Toronto morning trading, outperforming the stock index, which fell.
The firm is expected to add 24 Canadian cents to underlying earnings per share and 50 basis points to its return on equity after synergies, which are expected to be $60 million, according to Canaccord Genuity analyst Scott Chan, who added that the transaction is "expected to support Sun Life's peer-leading ROE metrics."
The agreement follows a wave of other acquisitions by Canadian life insurers in recent years, as they seek deals overseas, mainly in the United States, due to limited growth at home and record levels of cash.
Sun Life has been developing its group benefits business in the United States, albeit with smaller partnerships, such as those with PinnacleCare, a provider of medical intelligence and healthcare navigation in the United States, and benefits platform Maxwell Health.
Sun Life will have "flexibility to maneuver" in the future and make additional investments, officials said on the call, particularly as it looks to expand its pharmacy stop-loss business and take advantage of prospective expansions of health care services and funding in the United States.
Sun Life will spend $250 million on transaction and integration fees, according to the executives.