Alexander Forbes is pursuing a “sizeable acquisition” that is likely to be in the employee benefits sector as it concludes its exit from an insurance industry ravaged by the Covid-19 pandemic.
The pension fund administrator said in its annual results on Monday that it is considering a healthy pipeline of acquisitions that will help it scale up its core pension fund administration and employee benefits operations. That news came as it announced separately that it had reached an agreement on June 11 to sell its group risk and retail life business to Sanlam for R100m.
While half of the proceeds of that transaction, which remains subject to regulatory approval and certain conditions being met, would be deferred in two equal payments, 12 and 24 months from the effective date of sale, it would give Alexander Forbes a considerable war chest for new buyouts.
It also comes as the economy battles to recovery from Covid-19, which Alexander Forbes CEO Dawie de Villiers said has convinced many businesses to focus on their core competencies.
Alongside proceeds from the sale, exiting the sector is likely to free up money demanded by the Reserve Bank to be held against insurance policies — a capital requirement that prevents money from being used to pursue growth.
He added that could result in businesses carving out their employee benefits or other administrative functions. Employee benefits typically cover non-salary compensation and include the administration of mandatory payroll deductions such as unemployment insurance as well as discretionary items such as medical aid and retirement savings.
“We are busy with a few discussions and all things being equal we will hopefully be able to pull something off,” De Villiers told Business Day in an interview. “It will be in the employee benefits space. I’m hopeful we will be able to shed more light on it during this year.”
As part of its final steps out of the insurance industry, Alexander Forbes also offloaded its Namibian short-term insurer to Momentum during its past fiscal year, which saw it deliver operating income of R3.15bn in the year to end-March 2021. Headline earnings per share from continuing operations rose 4% in the period to 33.4c, allowing for a final dividend of 9c per share and taking its annual dividend to 22c a share.
“We’ve slimmed down now by selling the insurance businesses and hopefully we get it right to bulk up in the areas where we feel we have a competitive advantage,” said De Villiers. “We’re clear in our strategy that we want to focus on the administration, consulting and asset management and in that space we want to grow. That will allow us to get the scale and the synergy benefits over time rather than trying to do more different things.”
Alexander Forbes announced in its results that it would continue to “embed” environmental, social and governance (ESG) principles when making investment allocations in the multi-managed funds it oversees. That comes as other asset managers, including Coronation and Ninety One, place greater emphasis on ESG as the non-financial outcomes of the investment industry come under greater scrutiny.
Nevertheless, Sygnia executive chair Magda Wierzycka caused a stir last week when she said ESG investing is “largely meaningless” as asset managers are using it more for marketing than from a desire to make a real difference.
“As a multi-manager we’re taking [ESG] more seriously,” said De Villiers. “What we can do as a multi-manager is rate our underlying managers according to high-level ESG standards and apply that in our selection of the managers, as we do with BEE and so forth.”
Alexander Forbes is also forging ahead with its goal of becoming a more automated and digitised business. To achieve this it is focusing on automatic premium collection and billing, electronic claims processing and integrated workflow management that will give it a single view of clients.
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