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Commercial banks

Clarica Acquires Royal Trust's Group Retirement Services Business for $45.4 Million

Strategic Insights

— 2 min read

Clarica, a Canadian insurance company, has agreed to acquire the Group Retirement Services business of the Royal Trust Company and Royal Trust Corporation of Canada, subsidiaries of Royal Bank of Canada. This acquisition further underscores Clarica's objective of growth through strategic acquisitions, supporting its commitment to delivering enhanced shareholder value by expanding its wealth management business.

The transaction involves primarily defined contribution pension plans sold on a group basis, including group retirement savings and profit sharing plans, as well as stock purchase and option plans. Clarica will have dedicated teams to support the new business, as well as its existing operations. The company will acquire expertise in employee stock option programs and expand its capabilities in employee share purchase programs, providing new opportunities to serve both domestic and global markets.

Key Takeaways:

  • The acquisition price of $45.4 million will be financed from internal resources and booked as goodwill, amortized over 15 years.
  • Integration costs are estimated at approximately $17 million after-tax, with the impact on Clarica's earnings in 2001 anticipated to be around 15 cents per share.
  • The acquisition contributes minimally to earnings in 2002 and provides a return on equity of at least 15%. Integration costs include expanding Clarica's technological capability and infrastructure to serve customers and reduce costs.
  • Royal Trust is retaining some employees of the acquired business, and Clarica is offering employment to the rest.
  • As a result of this transaction, Clarica's Minimum Continuing Capital and Surplus Requirement will be reduced by three percent in 2001, despite remaining within Clarica's target range of 175 to 200 percent.
  • The acquisition will be completed by January 31, 2001, and fully integrated into Clarica's operations by the end of 2001.
  • The acquisition adds about 170 new plan sponsors with more than 175,000 plan members, including the Royal Employee Savings and Share Ownership Plan with approximately 39,000 participants and almost $850 million in assets under administration.
  • Royal Bank has agreed to retain Clarica as administrator of its RESSOP for a period of five years, as stated by Vice Chairman Reay Mackay.

Statistics:

  • Assets under administration by Royal Trust's Group Retirement Services business as of November 30, 2000: approximately $3.1 billion.
  • Combined assets under administration after acquisition, as of November 30, 2000: approximately $8.6 billion.
  • Market share in the defined contribution plan business: 16 percent, as per data from Benefits Canada.
  • Compound annual growth rate of defined contribution plan business: more than 15 percent over the past two years.
  • Expected double-digit annual growth of assets under administration for the business over the next three to five years.
  • Number of plan sponsors acquired: approximately 170.
  • Number of plan members acquired: more than 175,000.
  • Assets under administration by Royal Employee Savings and Share Ownership Plan: almost $850 million.
  • Integration costs: approximately $17 million after-tax.

Sources:

  • News release via Canada NewsWire, Toronto 416-863-9350 -ME- Copyright (C) 2000 CNW, All rights reserved News Provided by COMTEX (http://www.comtexnews.com)
  • Clarica's presentation on the acquisition, dated December 18, 2000.
  • Royal Bank of Canada's Web site, www.royalbank.com.

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