Aegon has acquired Legal & General’s investment platform Cofunds for £140m.
This transaction completes the strategic transformation of Aegon's operations in the United Kingdom from traditional life insurance to platform business, and firmly establishes the company as the number one provider in the retail platform market.
The transaction is expected to close by the end of 2016, subject to customary regulatory approval, and integration of the business is expected to be completed by 2018.
Aegon CEO Alex Wynaendts said: "I am delighted that we are able to announce the acquisition of Cofunds.
"This transaction builds on the successful repositioning of our business in the UK and the strong relationship we have built with Legal & General. By executing on our strategy, we have transformed our business into a cost efficient, scalable platform business.
"The acquisition of Cofunds is a unique opportunity to further accelerate the execution of our UK strategy. It enables us to create substantial value as the number one provider in the fast-growing UK platform market. I am proud that the number of customers we are helping in the United Kingdom to achieve a lifetime of financial security now exceeds three million."
Aegon expects to generate GBP 60 million of annualized cost synergies by moving the Cofunds business onto the state-of-the-art Aegon technology, and by delivering efficiencies as a result of removing duplication across the businesses. These cost savings are expected to lead to an estimated Solvency II capital benefit of GBP 150 million before the end of 2017, which significantly limits the net investment for the acquisition of Cofunds.
One-time expenses to achieve the cost synergies, and to ensure a smooth transition for customers and advisers, are estimated to be GBP 80 million. These expenses will be recorded in 2016 and 2017. As a result of the cost synergies and identified opportunities for growth, the acquisition of Cofunds will contribute to achieving the group's return on equity target.
Cofunds and Aegon's platform business are highly complementary. Cofunds was one of the first platforms to be launched in the United Kingdom, and is a leading player in the retail platform space with over 750,000 customers.
Transferring the Cofunds business onto Aegon's platform – which uses modern technology – will lead to significant benefits for these customers and their advisors. Benefits include less paperwork as a result of straight-through processing, a broader investment range, and integration of pensions on the platform, while pricing on existing business will be maintained.
Aegon's existing platform and Cofunds have limited overlap in terms of distribution. Together with the combined product strengths this represents an opportunity for revenue synergies from cross-selling. Furthermore, Aegon secured a distribution deal with Nationwide for investment products. Nationwide is the UK's largest building society and one of Cofunds' key distributors.
As a result of a series of transformational divestments and acquisitions, Aegon will be the leader in the UK platform market. Following this strategic transformation, Aegon will fully focus on the growth of fee-based products on its UK platform. This capital-light strategy is expected to result in predictable, growing capital generation.
Aegon updated its capital management policy for the UK following the Cofunds acquisition. The life and pension business will continue to be operated within a Solvency II target range of 130-150%. Cofunds will write all investment products and maintain a Capital Requirements Directive (CRD) IV capital ratio of 110-120%.
Aegon expects its businesses in the United Kingdom to remain within these target ranges. Aegon's UK subsidiaries expect to resume dividend payments to the holding in 2017 in line with earlier guidance.