Sanlam says its deal with Capital Legacy, which will see it roll one of its fiduciary services units into the wills and estate planning business and take a 26% in the enlarged entity, will result in a “Tetris-like” fit that will benefit both companies.
The Bellville-headquartered financial services group announced the Capital Legacy deal in a voluntary statement to the JSE on Friday. The statement also revealed that it would be buying the remaining 38% shareholding in BrightRock, the life insurer in which it first invested in 2017.
Through its 25% shareholding in African Rainbow Capital Financial Services Investments (ARC FSI), Sanlam already has an indirect holding in Capital Legacy. ARC FSI holds 29% of Capital Legacy, a stake that will drop to 25% after the Sanlam transaction as existing shareholdings are diluted.
“We’re incredibly excited about the Capital Legacy transaction,” Anton Gildenhuys, CEO of Sanlam’s retail affluent business in SA, told Business Day. “We’re going to really get that spin-off benefit in our adviser channels from doing proper estate planning and identifying additional financial needs. Estate planning is such a specialist skill and that’s where we’ve been underwhelming in my view in terms of offering that proposition to our intermediaries to give to their clients. We’ve solved that now through this acquisition.”
The Capital Legacy transaction will see Sanlam combine the fiduciary operations of Sanlam Trust Proprietary with those of Capital Legacy to create a larger fiduciary services entity offering life insurance under the Legacy Protection Plan. Sanlam Private Wealth Fiduciary Services and Sanlam Corporate’s Legacy Beneficiary Fund are not part of the deal.
The transaction will involve Sanlam Life disposing of the Sanlam Trust to Capital Legacy for R390m in exchange for shares in Capital Legacy. At the same time Sanlam Life will subscribe for further shares in Capital Legacy for R720m in cash, resulting in Sanlam owning a 26% stake in the enlarged entity.
“These two businesses are a bit like Tetris — they just fit together perfectly,” says Gildenhuys. “They’re complementary to one another. If you look at the wider fiduciary offering in SA it’s incredibly fragmented. You get firms of attorneys, banks, insurance companies doing it. It’s not a market where you have one big player with a massive market share.”
The deal also involves commercial agreements under which Sanlam will earn additional profits based on the number of its clients that are serviced by Capital Legacy. Sanlam will also have the first rights to provide financial and other reinsurance to Capital Legacy on all new business.
Gildenhuys was particularly excited about Capital Legacy's strong distribution capabilities through its roughly 200 agents and consultants who use its software, will drafting and will storage capacity to assist clients with estate planning. Capital Legacy wrote new business worth about R300m in the year to end-March 2022 and typically drafts more than 100,000 wills a year.
“Our tied advisers have been screaming for something like this because they can see the presence of Capital Legacy in the market,” said Gildenhuys. “Through Capital Legacy’s estate planning consultants collaborating with our advisers we really think we’re going to strengthen our value proposition.”
The deal between the two companies will allow Sanlam’s network of 2,200 tied advisers as well as its relationships with independent financial advisers (IFAs) to assist clients with any additional financial needs that arise during the estate planning process. Capital Legacy will also benefit from Sanlam Trust’s well-established estate and trust administration competence in SA.
“They’ve got a very established estates administration business and a beneficiary fund which we don’t have at the moment so we’re immediately enabled with this well running capacity,” said Alex Simeonides, CEO and founder of Capital Legacy. “Sanlam also presents a massive new business distribution opportunity — we’ve now got that upside.”
The BrightRock transaction will see Sanlam buy out the insurer’s minority shareholders for R399m, taking its stake from 62% to full control. Further payments of between R95m and R437m will be paid over the next three years, subject to new business targets being met.
Sanlam also intends to transfer BrightRock’s business to the Sanlam Life licence in future. However, BrightRock will remain as a separate division of Sanlam Life, with its own brand, distribution channels and products.
“Running a separate [insurance] licence in SA is quite inefficient if you only have a single [product] line on it,” said Gildenhuys. “You don’t get any capital diversification benefits. Running a separate licence also comes with a lot of extra expenses — a head of actuarial controls, risk management, compliance. The idea would be to get some expense savings by leveraging off the control functions within the larger group.”
Simeonides told Business Day that Capital Legacy also plans to apply for its own life licence in due course.
The Capital Legacy deal is subject to approval from the competition authorities, the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA). The deal is expected to be completed in the third quarter of 2023.
The BrightRock transaction is subject to approval from the PA and the FSCA and is expected to be finalised in the second quarter of 2023.
Sanlam said its discretionary capital position will remain strong after the two transactions. It will give further guidance on future capital deployment plans when it publishes its annual results on March 9.
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