DBRS Ltd. says that Great-West Life’s acquisition of J.P. Morgan’s Retirement Plan Services business in the U.S. is a good move for the company, and in line with its strategy.
The rating agency says that it views the deal as a positive development for Great-West, which is consistent with the company’s strategy to grow its U.S. retirement services businesses. It says that the potential for incremental profits and future product synergies with the rest of the company is a positive for the firm. And, it suggests that the financial impact of the acquisition is small compared to the overall size of Great-West’s balance sheet — although the terms of the deal were not announced.
The transaction is expected to close in the third quarter, pending regulatory approval. JP Morgan’s business has about 200 clients with 1.9 million participants and $167 billion in assets.
From a strategic point of view, DBRS also says that the deal strengthens Great-West’s position in the defined contribution record-keeping business and vaults it to the second-largest record keeper for DC plans (as measured by number of participants). Additionally, it sees the expansion into the large company DC plan market as a complement to the small and mid-sized employer DC plan market that it has been most active in.
While it notes that there is some integration risk to the deal, given the very large size of the DC plans involved; it says, “switching plan record keepers is costly and time consuming for plan sponsors, so there would need to be a very significant inducement, be it positive or negative, for a plan departure to occur.”