Yunfeng Financial, Hong Kong's rising fintech star, announced today that it will join Ant Financial, Singapore's GIC and other institutions in spending HK$13.1 billion to acquire MassMutual's Hong Kong and Macau businesses.
The deal has many highlights:
In terms of price, MassMutual Asia ranks among the top ten in Hong Kong's life insurance market by regular premium income, with total assets exceeding HK$44 billion and after-tax profit of as much as HK$1.119 billion. On a price-to-earnings basis, the acquisition price is about 11.7 times, cheaper than most insurers currently listed in Hong Kong. Benefiting from the pursuit of overseas insurance products by mainland high-net-worth clients in recent years, MassMutual Asia's business growth has also been impressive: total premium income reached HK$6.9 billion in 2016, and its individual life business has grown at an average double-digit annual rate for many years. On the balance sheet side, MassMutual Asia has no financial leverage, and its solvency ratio has remained above 250% (the regulatory requirement is above 150%). Compared with other financial industries, insurance has a long incubation period, and M&A is the preferred route for quickly capturing the market. As a top-ten life insurer, MassMutual Asia can be described as extremely scarce. At the same time, relative to transaction data of the past few years, the valuation of this deal is very reasonable; an important factor is also that MassMutual can share in Yunfeng Financial's future growth. The participation of Ant Financial, Sina and GIC also proves that this deal is highly attractive.
In terms of deal structure, Yunfeng is acquiring 60% of MassMutual Asia, of which HK$5.2 billion will be paid to MassMutual by issuing 800 million new shares at HK$6.5 per share in a share swap, and the remaining HK$2.66 billion will be paid in cash or interest-free notes. After the acquisition, MassMutual will hold 24.8% of Yunfeng Financial's enlarged issued share capital, becoming the second largest shareholder of Yunfeng Financial Group Limited. To maintain the sustainable and stable development of the business, MassMutual will transfer the independent "MassMutual" trademark in Hong Kong, Macau and mainland China to Yunfeng Financial. The remaining 40% of MassMutual Asia will be distributed among Meiyou International, GIC, Ant Financial, Xinhui Development, Sina Corporation, Manyi International and Giant Investment (Hong Kong).
Among them, Yunfeng Financial, Ant Financial and MassMutual have signed a strategic cooperation agreement. MassMutual is the fifth largest insurer in the United States, with US$29.6 billion in operating revenue in 2016 and US$670 billion in assets under management. Its subsidiaries include the world-renowned Barings and OppenheimerFunds, which had more than US$500 billion in assets under management in 2016. Through this transaction, the three parties become strategic partners. Ant Financial will further develop in Hong Kong through Yunfeng Financial and MassMutual Asia, and directly reach the U.S. insurance market. MassMutual, by selling a branch with stable profits and rapid growth, becomes Yunfeng Financial's second largest shareholder through the share swap, positioning itself for the rapid growth of internet finance. Moreover, cooperation with Ant Financial will also help improve MassMutual's big data analysis and risk control capabilities. MassMutual becomes Yunfeng Financial's preferred partner for new product development, and its Barings fund becomes one of the first fund managers on the Youyu Smart Investment platform, occupying a new sales channel. Through this transaction, Yunfeng Financial integrates MassMutual Asia's insurance business and mature customer base, and also cooperates with various internet giants to become a hub connecting the internet and traditional finance. The structure of this deal perfectly reflects a win-win situation for all parties.
In terms of strategic significance, through this deal Yunfeng has in one move taken control of MassMutual Asia, a top-ten insurer in Hong Kong life insurance premium income, building an all-round internet finance group. After the deal is completed, Yunfeng Financial can provide one-stop personal financial services such as stock trading, fund trading, investment advisory and life insurance, as well as institutional financial services such as corporate finance, cash management, discretionary wealth management, employee stock ownership, MPF and enterprise annuities, expanding its existing financial ecosystem. As an internet finance enterprise, Yunfeng Financial has invested heavily in R&D over the past two years, built a strong product development and investment research team, and launched two apps - Youyu Stocks and Youyu Smart Investment - in a very short time, filling a gap in Hong Kong's fintech innovation. This integration of MassMutual's insurance and annuity services further enriches its financial services. MassMutual Asia's strong professional advisory team perfectly complements Yunfeng's offline team, enabling financial products and services to reach more customer groups. The stickiness of insurance products also further reduces Yunfeng Financial's customer acquisition costs. Unlike other insurers that rely mainly on banks as sales channels, MassMutual Asia relies mainly on agents. Next, by integrating the latest internet technologies to enable mobile product services, improving marketing precision and operational efficiency, MassMutual Asia can achieve even more rapid development. In addition to recommending its already rich range of insurance products, MassMutual Asia's agents will also be able to provide customers with diversified financial services, conduct cross-selling, improve each agent's profitability and make full use of human resources. In addition, Yunfeng Financial's investment advisory capabilities, institutional client resources and internet product capabilities can activate MassMutual Asia's annuity business. Yunfeng's move undoubtedly occupies the track with the greatest customer stickiness in financial services. The participation of many internet giants also leaves ample room for imagination for Yunfeng Financial's next push.
Source: China Business News 2017-08-18