🦷 ​Will Sun Life Shine More With DentaQuest?

PepsiCo warns of price hikes; Target offers incentives.

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🦷 Sun Life: More Teeth To Its Quest?

Canada’s second-largest life insurer Sun Life Financial (SLF), will acquire dental benefits provider DentaQuest for $2.48B, its largest deal since 2002. This is another instance of Canadian companies looking elsewhere for growth opportunities as the domestic market faces a slowdown. (Tweet This)

Expanding Footprint

Sun Life Financial is one of the largest and oldest life insurance companies in the world. Founded in  1865, the company went public in March 2000, and its shares are traded on the Toronto, New York, and Philippine Stock Exchanges.

In 2002 Sun Life acquired local insurer Clarica Life Insurance for $5.8B – its largest acquisition. As part of that acquisition, Clarica’s then VP of Pensions and Group Savings, Kevin Strain, joined the company. He is today the CEO of Sun Life.

When the subprime mortgage crisis of 2008 became a global conflagration, Sun Life managed to come out of it in better shape than its brethren, i.e., without having to accept any bailout money.  They made that a talking point about their relative strength in the industry. Today, the company has ~$1.36T in assets under management.

The target of the acquisition is US-based dental benefits provider DentaQuest. Founded in 2001, it currently has over 2.4K employees serving 33M customers in 36 states, and is the second-largest provider in the US. DentaQuest is majority-owned by the non-profit CareQuest Institute for Oral Health. PE firm Centerbridge holds a minority stake.

The Grin For The Win

The deal is expected to be completed in the first half of 2022 and is expected to add $100M to Sun Life’s profits after the first year of the transaction consummation. Transaction and integration costs for Sun Life are expected to be in the range of $250M.

The government is one of the largest healthcare coverage providers in the US through the Medicaid and Medicare programs. Medicaid covers 75.4M low-income families and is administered by the states.

Today, DentaQuest is the largest provider of Medicaid dental benefits in the US and is looking to strengthen its business by expanding into Medicare. Sun Life views this deal as an opportunity to gain a foothold in the market overseen by the US government.

Overnight, Sun Life’s Employee Benefits business is set to double in terms of revenues with DentaQuest’s acquisition. Sun Life expects the acquisition to add $0.13 to its EPS off the bat. As the combined entity realizes further synergies of $60M in a couple of years, the deal is expected to add $0.19 to Sun Life’s EPS.

Canadian companies have increasingly been looking southward for growth. Back in July, Great-West Lifeco acquired Prudential Financial Inc.’s full-service retirement business for $3.5B. The acquisition of Kansas City Southern by Canadian Pacific for $27.2B is another example. 

DentaQuest tops a handful of other acquisitions by Sun Life in the US to expand its footprint there: Assurant Inc.’s Group Business in 2016 for $940M; Maxwell Health in 2018 for an undisclosed sum; and PinnacleCare International earlier this year for $85M.

Sun Life’s investors are no doubt grinning ear to ear with the addition of DentaQuest. The reason is the super sticky Medicare and Medicaid business that DentaQuest brings with it. As long as the integration doesn’t throw any surprises, this one seems to be winning the investors’ smiles!

Market Reaction
SLF ended at $53.99, up 1.94%. Shares are up 22% this year.

Company Snapshot 📈

SLF $53.99 +1.03 (1.94%)

Analyst Ratings (17 Analysts) BUY 76%  HOLD 24%  SELL 0%

Newsworthy 📰

Warning: PepsiCo warns of another price increase as supply disruptions linger (PEP +0.59%)

Hope: Hertz shares jump after appointing ex-Ford CEO Mark Fields as interim CEO (HTZZ +9.87%)

Luring: Target will pay employees an extra $2 an hour for peak days of holiday season (TGT +0.74%)

Later Today 🕒

  • Constellation Brands Inc. Earnings (STZ)
  • Levi Strauss & Co. Earnings (LEVI)
  • Acuity Brands Inc. Earnings (AYI)
  • Resources Connection Inc. Earnings (RGP)
  • Nike Inc. Annual General Meeting (NKE)

Today’s Market Terminology: Swing Trade

Swing trading is a style of trading that attempts to capture short-to-medium-term gains in a stock over a period of a few days to several weeks. It generally involves holding a position for more than one trading session

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