Phoenix Group has announced that it is to acquire Sun Life UK from Sun Life Financial for £248m, subject to regulatory approvals.

The cash consideration for the closed book life insurance company will be funded through existing cash resources and the deal is expected to be completed in Q1 2023.

This transaction pricing equates to a price to shareholder Own Funds ratio of 83 per cent, which Phoenix said was in line with the board’s “disciplined approach” to the deployment of shareholder capital.

Pheonix added that the acquisition is expected to deliver around £470m of incremental long-term cash generation, with around 30 per cent of this to emerge in the first three years.

Operating a predominantly outsourced business model, the majority of Sun Life UK’s policy administration is already undertaken by Phoenix’s strategic outsourcing partner, TCS Diligenta.

Phoenix is targeting the delivery of approximately £125m of integration synergies, net of costs, from cost efficiencies and capital management actions, representing around half of the consideration paid.

It has also agreed a new long-term strategic asset management partnership with Sun Life Financial, which aims to enhance and diversify Phoenix’s liquid and illiquid credit origination capabilities in North America.

Pheonix noted that the acquisition supported a 2.5 per cent dividend increase, payable from and including the 2022 final dividend, subject to completion.

As at 31 December 2021, Sun Life UK had around 480,000 in-force policies and approximately £10bn of assets under administration, of which around £2.5bn are annuities that will remain reinsured with Sun Life.

“The acquisition of Sun Life UK is highly attractive for Phoenix Group and demonstrates the significant value that smaller cash funded M&A transactions can deliver for our shareholders,” commented Phoenix Group CEO, Andy Briggs.

“We expect this acquisition to deliver incremental long-term cash generation of around £470m, inclusive of cost and capital synergies. This supports a 2.5 per cent dividend increase, in line with our ambition to sustainably grow our dividend over time.

“We welcome the colleagues who will join us from Sun Life UK, and as the UK’s largest long-term savings and retirement business with a strong track record of closed book integrations, we look forward to offering a safe home for Sun Life UK’s customers over the long term.

“I am pleased that we will also be able to offer Sun Life UK’s customers access to our broad range of Standard Life products in our Open division.”

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