Legal & General Group has today agreed to acquire the entire share capital of Lucida plc, the closed UK annuity buy-out company with a portfolio of £1.4bn of annuity assets, from LCM Holdings Limited. The acquisition, by the Group’s subsidiary Legal & General Assurance Society (“LGAS”), an AA- rated entity, for an estimated consideration of £151m, is expected to complete in Quarter 3 2013, subject to PRA and FCA approval.
Legal & General has identified retirement solutions as one of its five key themes for growth. This acquisition forms part of our strategy of accelerating our organic growth with bolt-on acquisitions. We delivered strong annuity sales in Q1 with record Q1 individual annuity premiums up 51% to £406m and £357m of bulk annuity premiums.
Lucida was founded in 2006 to focus on the bulk purchase annuity market. It implemented bulk annuity arrangements with the Merchant Navy Officers Pension Fund, New Ireland Assurance and the UK pension schemes of Morgan Crucible and Newell Rubbermaid. Lucida closed to new business in November 2012 and is currently responsible for over 31,000 pensions in payment.
The estimated cash consideration of £151m will be funded from surplus capital held within the Group. We expect operational and capital synergies, from Legal & General managing the business, will allow the release of approximately £66m of capital and reserves (after tax) immediately following completion. This gives a net acquisition price of around £85m. The net acquisition price represents 54% of the embedded value of Lucida, which is estimated to be £157m after capital and reserve releases.
Further significant capital synergies are expected following corporate restructuring anticipated in 2014.
The acquisition will deliver asset management and annuities administration synergies, is expected to be earnings accretive for Legal & General in its first year and exceeds our target return on economic capital.
Kerrigan Procter, Managing Director Annuities, Legal & General said:
“We identified retirement solutions as one of our five themes for growth, and I’m delighted today to be able to announce our first acquisition in this arena. So far this year we have completed the UK’s largest ever longevity insurance deal, announced our first international BPA transaction and delivered record Q1 individual annuity premiums.
“This acquisition will benefit Lucida’s customers, by providing them with the comfort of knowing their pensions will be paid by a longstanding, trusted and well capitalised business. Legal & General’s annuity business has over 700,000 customers who rely on it for their pension income, and manages over £33bn in assets.”
Wadham Downing, Group M&A Director, Legal & General said:
“We announced at our preliminary results our five key themes for growth. With today’s announcement on Lucida, in addition to our acquisitions this year of Cofunds and CALA, we have now agreed bolt-on acquisitions in three of the five growth areas; digital, direct investments, and now retirement solutions. Going forward we will continue to enhance our strong organic growth story in these five areas with selected bolt-on acquisitions that meet our strategic and financial criteria.”
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