Transamerica Retirement Solutions will acquire the defined contribution record-keeping business of Mercer, both companies announced Friday.
The transaction is expected to close by the end of the year; terms were not disclosed.
Mercer's record-keeping business covers about 917,000 participants and assets under administration of about $71 billion as of Aug. 31, according to a news release from Aegon, the parent of Transamerica.
Transamerica's record-keeping business has about $145 billion in assets under administration as of Aug. 31, serving about 4.1 million participants.
Based on Pensions & Investments' annual survey of DC record keepers for the 12 months ended Sept. 30, 2014, Transamerica ranked 13th in record-keeping assets with $119.4 billion and Mercer was 16th with $97 billion. Their combined total would have ranked seventh.
In the ranking of firms by number of participants, Transamerica was ninth with 3.33 million and Mercer was 21st with 1.28 million participants. The combined total would have ranked sixth.
Mercer DC plan clients will be served by the same people after the acquisition, Kent Callahan, president and CEO of the investments and retirement division of Transamerica, said in an interview. Mr. Callahan said Transamerica had been working with Mercer “for many, many months” on the deal, although he declined to provide details on a transaction that he described as giving Transamerica greater scale.
“In the next three to five years, we will see a significant spike in M&A activity” in the record-keeping arena, Mr. Callahan said. “Scale is very important. We want to grow our scale to remain competitive from a pricing perspective.”
Mr. Callahan added that one benefit of the Mercer deal would be the addition of Mercer's large 401(k) clients to the Transamerica lineup. Although Transamerica has some large 401(k) clients, many of its biggest clients are 403(b) plans. “We want to grow faster in the large corporate space,” he said.
Sandy McCarthy, a senior partner and U.S. benefits administration leader for benefits at Mercer, said: “This alliance will strengthen our relationship with clients. Transamerica continues to invest in the defined contribution area.”
Ms. McCarthy declined to comment on how many Mercer employees are involved in the DC record-keeping business. “Transamerica intends to offer employment to our defined contribution employees,” she said.
Asked about the decline in Mercer's record-keeping assets and participants between the P&I survey and the most recently provided data, Ms. McCarthy said in an email: “In the past year, we have been increasingly focused on partnering with clients to ensure a fair value between our firms.”
Mr. Callahan of Transamerica declined to comment.
The transaction represents the latest step in a continuing series of defined contribution record-keeping mergers and acquisitions in recent years.
Manulife Financial Corp. in April completed the acquisition of the DC record-keeping business of New York Life Investment Management, combining it with Manulife's John Hancock Retirement Plan Services. In June, OneAmerica Financial Partners announced it was acquiring the defined contribution record-keeping business of BMO Financial Group.
Defined contribution consultants have remarked that they expect mergers and acquisitions to continue because record keeping has become an increasingly lower-margin business.
“With a commoditized business, where there is a lot of competition and margins that are under pressure, businesses have to find ways to run profitably,” Ross Bremen, a partner at consultant NEPC, said in an interview Friday describing the marketplace. “We have seen a lot of mergers and acquisitions in recent years as a result of this environment.”
Transamerica Retirement Solutions itself is the product of a merger that took effect in January 2013 between Diversified and Transamerica Retirement Services, both of which were owned by Aegon.
