The two organizations creating Canada’s largest insurance firm face enormous risks integrating their IT platforms, according to experts who follow the financial services industry.
Earlier this week, Great-West Lifeco. Inc. said
it would acquire Canada Life Financial Corp. for $7.3 billion. Canada Life’s board of directors has recommended shareholders vote in favour of the offer, which would bring the company under a conglomerate that also includes London Life. Canada Life had previously been the object of a hostile takeover bid from Manulife Financial Corp.
In a press conference where the two companies discussed the deal, Great-West Life co-CEO Ray McFeetors said Canada Life’s brand will remain intact. Where Great-West sees synergies, he said, are in the combination of both organization’s back offices.
“”One of the big gains with Canada Life is they’re spent a lot of money on very superior systems which are just coming online,”” he said. “”We will take those systems — they’re scaleable, which means they’re expandable — we’ll deploy them through the whole group of companies, and synergies will emerge in a whole bunch of companies, not just Great-West and Canada Life.””
The acquisition already faces potential opposition from pension fund managers because the $288 million break fee exceeds their voting guidelines. But even if it succeeds, some organizations worry about the integration. On Wednesday, for example, insurance rating firm A.M. Best placed the financial strength of Great-West Life under review with “”negative implications.”” According to one of its analysts, Bill Pargeans, the 104-year-old company is taking a conservative view because of the financial borrowing Great-West Life will have to do to pull the deal off. But he also said integration, in this case, includes technology as well as financial hurdles.
“”How easy can something the size of these of these two organizations migrate hundreds of thousands of contracts from one system to another?”” he said. “”It’s probably not an easy task.””
The integration could be more challenging, Pargeans added, because unlike, for example, Sun Life Financial’s purchase of Clarica Life, which worked mostly in Canada and the United States, Canada Life is spread across the United Kingdom and Germany, among other regions. “”There’s nothing to synergize, there’s nothing to amalgamate, there’s no systems to combine and make more efficient,”” he said.
Spokespeople for Great-West Life said the company was not prepared to discuss in detail how it would bring the two organization’s back office systems together.
Gartner Inc. analyst David Furlonger said that IT challenges could compound the various