Sun Life Financial pledged Wednesday evening to return capital to shareholders in the form of a 9 million share buyback, but the company still has plenty of capital to pull the trigger on an acquisition. If only the prices weren't so high, its chief executive said.
Sun Life reported third quarter profits from continuing operations, which strip out the U.S. annuities business it sold, of $435-million after markets closed Wednesday, up from $324-million in the same period last year. Its adjusted profits beat analyst expectations.
The buybacks, worth about $365-million at yesterday's closing price, left the company "flexibility for acquisitions and other growth opportunities," according to Dean Connor, CEO of Sun Life.
Fellow life insurer Manulife Financial Corp. recently pulled the trigger on a $4-billion deal to buy Standard Life PLC's Canadian division. The acquisition was conducted through a sealed-bid auction after months of discussions, and Sun Life and Great-West Lifeco Inc. expressed interest, according to people familiar with the process.
Manulife said part of the deal's appeal was that it would build up business in the Quebec market, where the insurer "has historically been underrepresented... both in terms of jobs and our penetration of the market," said Donald Guloien, chief executive of Manulife, at the time.
Sun Life's own effort to expand and strengthen its business in the Quebec market ramped up four years ago, when it hired former Montreal Board of Trade president Isabelle Hudon to grow the business in the province. Mr. Connor said that insurance sales more than doubled in that time and the company has shifted more leadership roles for Canadian operations to Quebec. Of course, Montreal was at one time home Sun Life, but the company moved its headquarters to Toronto in the late 1970s.
For Sun Life, there are "opportunities for us to do a lot more in the province," Mr. Connor said, citing the company's insurance and mutual funds as well as other wealth programs.
With Standard Life's Canadian operations now snapped up (and indeed, even before that), there are few opportunities for acquisitions left the in the oligopolistic Canadian insurance market. "And in fact," Mr. Connor added, "we have such a leadership position and growth opportunities in our current businesses that acquiring other insurance companies would be low on our priority list."
The company is more interested in acquisitions that would expand is its mutual fund business, and its newly created institutional asset management business Sun Life Investment Management, either in the U.S. and Canada, Mr. Connor said.
Assets under management reached another record in the third quarter, up to $$698-billion, up 18 per cent over the same time last year.
Mr. Connor said that the company continues to look for M&A opportunities around the world, too. But deals have been tough to scrounge up.
"I would say we're in a market where there are a lot of assets chasing acquisition opportunities, and the prices we are seeing businesses being sold for, in our eyes, are not going to generate sufficient returns for shareholders," Mr. Connor said. "So it's a challenging market to find acquisitions that make both strategic and financial sense."
Investors should expect a clearer picture of Sun Life's growth strategy and financial targets on the company's investor day, to be held some time after it's fourth quarter earnings, Mr. Connor said on the conference call to analysts on Thursday.
Sun Life is edging toward the end of the year and is well on track to meet its goal of $2-billion in annual profits by 2015, which was set by Mr. Connor in 2012. Operating net income was more than $1.4-billion year-to-date in the third quarter.