There's a lot to like about the retirement services industry, which helps explain why private equity investors are taking a shine to the sector.
Guaranteed growth is at the top of the list.
"They are looking for growth sectors with stable cash flows where they can create efficiencies and economies of scale," said Robert Goldbaum, a New York-based partner at Morgan Lewis & Bockius LLP, who specializes in mergers and acquisitions. "Ten thousand people are retiring every day. This is a growth sector with reliable trends."
Among the deals:
- Last month, Hellman & Friedman launched a bid for Financial Engines Inc., the leading provider of managed accounts as well as a provider of investment advice and investment education for retirement plan participants and individual retirees. The $3 billion deal is expected to close in the third quarter, pending approval by Financial Engines shareholders and regulators.
- Last year, Blackstone Group LP bought the record-keeping and other benefits businesses from Aon PLC. The record keeper, now known as Alight Solutions, is the fifth largest in terms of assets and sixth in terms of participants, according to Pensions & Investments' annual survey. Blackstone paid $4.3 billion and could pay another $500 million based on performance.
- And in the not-too-distant past, two private equity firms — Aquiline Capital Partners LLC and Genstar Capital LLC — acquired the record keeper and 529 plan administrator Ascensus LLC. Although it is 20th in assets in the Pensions & Investments' survey, Ascensus ranks fifth in the number of sponsor clients. It emphasizes small and midsize DC plans, whereas Alight focuses on larger DC plans. Terms weren't disclosed.
The reasons are varied for these large deals as well as for other private equity transactions involving the retirement, financial services and investment fields, but some common themes have emerged in addition to the pursuit of stable cash flows and reliable revenue.