Sun Life Financial US recently completed its $2.475 billion acquisition of DentaQuest, the second-largest dental benefits provider in the US by membership. The deal, which closed on June 1, 2022, is expected to bring Sun Life US’s total annual benefits revenues to more than $7 billion.
The financial services giant now serves more than 50 million Americans through its broad portfolio of products and services, which includes disability, absence management, life, dental, vision, voluntary, medical stop-loss, and care navigation. Boosted by its DentaQuest acquisition, Sun Life US is now one of the largest providers of specialty benefits in the country.
“Over the past decade we have transformed the US business from a mostly retail individual life and annuities business to a high-performing market leading benefits business,” said Dan Fishbein, president, Sun Life Financial US. “The DentaQuest acquisition continues this evolution, changing the footprint of our business in the US into a larger, more healthcare-focused organization, now with more than 70% of our benefits revenue coming from healthcare.
“These changes have transitioned Sun Life US from a capital-intensive to a capital-light business with strong cash flow generation; from businesses with long-term risk profiles to mostly short-term risk and fee-based businesses; from slow-growth markets to higher growth markets; and from return on equity (ROE) in the single digits to a return on tangible equity in the high teens.”
Headquartered in Boston and founded in 2001, DentaQuest brought more than 33 million members in 36 states and more than 2,400 employees across to Sun Life US. At the time of acquisition, it was the largest provider of US Medicaid dental benefits, with growing Medicare Advantage, commercial, and US Affordable Care Act (ACA) exchange businesses.
The leadership team for the combined dental benefits business under Sun Life US consists of a blend of DentaQuest and Sun Life leaders, all of whom are focused on growth strategies, revenue synergies, and optimizing performance, according to Fishbein.
“We’re approaching integration with great care and our goal is to realize the full potential of the transaction for all our stakeholders, including providing enhanced offerings for clients, delivering our accretion and cost savings targets for shareholders, creating new opportunities for our employees, and delivering a positive integration experience for all,” he explained.
“We have a strong track record of successfully integrating group benefits businesses, while minimizing disruption for our clients. Many of the leaders who managed the Assurant integration are involved in the DentaQuest integration. We are focused on integration activities that will support our run rate cost savings target of $60 million by 2024. We’re off to a strong start with a fully integrated leadership team, engaged employees, and a detailed plan for the remaining steps.”
Sun Life US announced its second quarter 2022 financial results on August 3, in which it reported insurance sales of $213 million, up 12% year-over-year, driven by higher dental and medical stop-loss sales. The business reported net income of $213 million, up by 36%, or $56 million, from the prior year period, but partially offset by costs related to the DentaQuest acquisition.
When Sun Life first announced the DentaQuest deal, it gave an accretion projection of an additional 42 basis points to underlying ROE in 2022 on an annualized basis. In 2024, upon realization of expense synergies, Sun Life expects the acquisition to add approximately 50 basis points to underlying ROE.
“The underlying earnings for DentaQuest in the one month [June 2022] was $10 million,” said Fishbein. “We’re still confident in the accretion projections that we made when we announced the transaction, and certainly, the results in June would support that. We did see higher margins in June than perhaps we expected, and a little lower revenues, but the higher margins more than made up for the small variance in revenues. Overall […] this first month gives us confidence in our prior projections.”
Fishbein said he’s excited about the future at Sun Life US, adding: “We now have four strong businesses with market leading positions in dental and stop-loss, and a top 10 employee benefits business. Although recent results have been somewhat masked by COVID impacts, once this subsides, we remain confident in achieving our medium-term targets for the US, including 10% or more earnings growth for our benefits businesses.”