In an announcement that is sure to shock almost no one, JC Flowers has put Ascensus back on the block, looking for $1 billion. In 2012, a reported sale to another DC provider for $400 million fell through.
Since that time, the DC market has heated up, Ascensus’ DC assets have grown to over $50 billion, they purchased a major 529 provider, and a deal to record keep smaller plans for Vanguard has shown great promise. Meanwhile, after paying a $100 million dividend to shareholders, Flowers sold Crump Insurance, which they acquired from Bisys in 2007 along with Ascensus, to BB&T.
Let’s step back. Bisys sold itself in pieces in 2007 right before the market crash — selling its fund-servicing group to Citi for $1.45 billion, and Crump, which included their insurance and record keeping groups, to Flowers for $800 million. Insiders have reported that the record keeper was valued quite low by Flowers.
Since then, Ascensus has enjoyed a resurgence — creating new deals to sell direct to advisors and broker dealers, acquiring ExpertPlan and signing the Vanguard deal. Sales grew from less than 500 new plans in 2012 to nearly 1,500 plans last year. Vanguard is expected to get aggressive in 2015, going from six wholesalers last year to as many as 25 sales reps this year — which should dramatically increase sales.
With the $100 million dividend and sale of Crump to BB&T for a reported $570 million, shareholders would enjoy a great return if Flowers is able to garner $1 billion. Who’s likely to buy, and how will a sale affect current clients like LPL and Merrill Lynch, not to mention Vanguard? There have been rumblings about service since the Vanguard deal, leading some to speculate that the latter is putting pressure on Ascensus’ low-cost business model. Known as one of the few record keepers that does not charge asset-based fees (thereby missing out on the revenue boost provided by the bull market), it will be interesting to see if Flowers can get $1 billion for a company with reported revenue of $280 million and $70 million in EBITDA.
Would an Ascensus acquisition provide an insurance company not currently in the DC market a way to enter — gaining access to millions of participants and relationships with tens of thousands of plans and plan advisors (not to mention the various BDs and RIAs)? Or might an existing provider look to leverage infrastructure with that book of business and reap additional profits? Does the move by states toward mandated payroll deduction IRAs by small businesses offer a unique opportunity — not only for Ascensus but also for a mutual fund company looking to sell proprietary funds? Either way, provider consolidation has hit a frenzy and should continue — as long as the market does not collapse.