Sun Life to Buy DentaQuest for $2.48 Billion to Grow in U.S.
(Bloomberg) -- Sun Life Financial Inc., Canada’s largest group-benefits company, agreed to buy U.S. dental-benefits provider DentaQuest for about $2.48 billion, bolstering its business south of the border.
Private equity firm Centerbridge Partners LP will sell its minority stake in DentaQuest as part of the transaction, Toronto-based Sun Life said in a statement Sunday. DentaQuest is majority owned by the non-profit CareQuest Institute for Oral Health, which plans to use the proceeds on programs to improve dental care for underserved communities.
The acquisition gives Sun Life the second-largest provider of dental benefits in the U.S., more than doubling its employee-benefits revenue there and adding to its portfolio of health and group benefits in the country. Boston-based DentaQuest, founded in 2001, has more than 33 million customers in 36 states and about 2,400 employees.
DentaQuest is the largest provider of Medicaid dental benefits and is expanding its Medicare Advantage and U.S. Affordable Care Act businesses, giving Sun Life access to the U.S. government market. The dental-benefits market also is less capital-intensive than other businesses such as long-term care insurance, making it a more attractive target, Sun Life Chief Executive Officer Kevin Strain said.
“We’ve been looking for ways to add scale to our group-benefits business -- and we’ve been growing organically quite well -- but we always thought that an acquisition would be an important step forward for us in the U.S. group-benefits space,” Strain said in an interview. “This one came to us in a space that we like, and it fit with our strategy.”
What Bloomberg Intelligence Says:
“This elevates Sun Life’s already solid position in the expanding U.S. group-insurance market while easing reliance on slower-growing Canadian units and market-sensitive MFS. Not cheap at 22x projected 2024 profit, we think the price looks justified, given DentaQuest’s 14% revenue growth and 33 million members.”
-- Jeffrey Flynn, BI insurance industry analyst
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The deal will immediately boost Sun Life’s profit, adding 17 Canadian cents (13 U.S. cents) to underlying earnings per share, according to the statement. Sun Life said that in 2024, after savings from the takeover have been realized, the deal will add 24 Canadian cents a share to underlying earnings. The deal is expected to be completed in the first half of 2022.
Sun Life rose 1.8% to C$66.23 at 10:07 a.m. in Toronto. The shares have climbed 17% this year, roughly in line with the S&P/Toronto Stock Exchange Composite Index.
Sun Life became a significant player in the U.S. group-benefits business in 2016, when it completed the $940 million acquisition of Assurant Inc.’s group business. The company followed that up with purchases of Maxwell Health in 2018 and PinnacleCare International earlier this year.
The DentaQuest deal could help Sun Life’s earnings from less capital-intensive businesses such as asset management and group benefits reach about 70% of its profit in a few years, Gabriel Dechaine, an analyst at National Bank of Canada, said in a note.
“Such a mix will further distance Sun Life from its peer group in terms of exposure to higher-valuation earnings sources,” Dechaine said.
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