Thank you for standing by. This is the conference operator. Welcome to the Great-West Lifeco conference call. As a reminder, all participants are in listen only mode, and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Mr. Paul Mahon, President and CEO of Great-West Lifeco. Please go ahead.
Thank you, Charisse. Good afternoon, everyone. I'm excited to share news today that Canada Life has reached an agreement to acquire Investment Planning Counsel, a leading independent wealth management firm from IGM Financial. Joining me on today's call are Garry MacNicholas, Executive Vice President and Chief Financial Officer, and Jeff Macoun, President and Chief Operating Officer, Canada. Before we start, I'll draw your attention to our cautionary notes regarding forward-looking information and non-GAAP financial measures and ratios on slide two. These apply to today's discussion and presentation materials. Following our prepared remarks, we'll open the line for questions. Please turn to slide three. Canada Life will acquire the business of Investment Planning Counsel as its subsidiary of IGM Financial for a cash consideration of CAD 575 million. This acquisition aligns with Great-West Lifeco's strategy of growing its wealth management businesses across the organization.
Over the past few years, we've invested in extending our Irish Life wealth management platform and added Personal Capital in the U.S. as a foundational capability from Power's personal wealth business. The transaction we're announcing today aligns with our strategy in Canada to be the leading platform for independent advisors, including best in class independent wealth management solutions. With CAD 31 billion in assets under administration and 650 advisors, Investment Planning Counsel, known as IPC, propels Canada Life to be one of the largest independent wealth providers in Canada with over 4,000 advisor relationships and CAD 85 billion in assets under administration. In addition to adding significant scale to our existing mutual fund and seg funds focused wealth platforms, it offers an expanded range of competitive product solutions, including mutual funds, securities, and discretionary portfolio management offerings.
This broader set of wealth solutions will allow advisors to grow their practices and support the changing needs of their clients within the evolving regulatory environment. It will also enhance Canada Life's existing strengths in independent advisor practice management, planning, and succession support. The transaction is highly strategic for Canada Life. The addition of its broader spectrum of wealth capabilities and strong talent will unlock significant value creation for Canada Life over time. The deal economics are attractive, with a purchase price of CAD 575 million representing 13x pro forma 2023 EBITDA. Garry will review other financial details later in the presentation. I'll now turn it over to Jeff Macoun to describe how the acquisition strengthens Canada Life. Jeff?
Thank you, Paul. Good afternoon, everyone. Please turn to slide four. We viewed IPC as a highly attractive target for some time. IPC has meaningful scale in Canada's independent wealth management space with CAD 31 billion in assets under administration and a network of more than 650 independent advisors. As you'll see on the right side of this slide, IPC has been growing steadily since 2018. Notwithstanding the decline in 2022, when wealth and asset manage were impacted by volatile market conditions, it's had strong growth since the start of 2023. IPC also brings many complementary benefits to Canada Life's business. With both an MFDA and an IIROC dealer, IPC is well positioned to meet a broad range of client needs. It also aligns with the new Canadian Investment Regulatory Organization that will oversee both types of dealers.
With the combined scale of IPC's dealers and our existing Quadrus dealer, we'll be able to invest more efficiently in products and technologies, including a spectrum of personal wealth solutions that help advisors grow their business and serve their clients. IPC One is another key strength of this business and brings new capabilities to Canada Life. IPC One is a technology enabled flat fee discretionary platform that allows advisors access to ETFs, pools, SMAs, mutual funds, and alternative asset classes. Of note is IPC Pinnacle. Its corporate office team who offer practice management support to advisors throughout the business life cycle from the launch of their practices, to business growth planning, to developing succession strategies to ensure continuity of advice and service to their clients.
IPC will continue to operate as a separate platform in the medium term as the regulatory environment and technology solutions evolve. Over time, we expect to reach all of these capabilities and create a single platform that supports mutual funds, securities, and discretionary dealer offerings. This will better position independent Canada Life and IPC advisors to meet their clients' needs. Please turn to slide five. This slide shows our largest peers across the non-bank wealth management space. With IPC, we're building on our strong Canadian franchise with a growing personal wealth business. We've been a market leader in segregated fund assets and sales for some time. As we accelerate our wealth strategy, IPC enables us to scale and extend our capabilities.
The addition of IPC's assets of CAD 31 billion to our segregated fund and mutual fund assets takes our market presence to CAD 85 billion, making us one of the top non-bank wealth providers in Canada. As we look to the future, we are very well positioned for strong organic growth and further investment in market consolidation. Please turn to slide six. With IPC, Canada Life is able to offer a broader range of solutions for advisors to support more complex affluents and high net worth client needs. By executing our strategy of being the leading destination for advisors, we can support even more Canadians with their diverse and changing needs. As previously noted, IPC's open architecture, MFDA, and IIROC platforms, as well as the unique discretionary platforms like IPC One, will be key enablers for advisor success in our evolving regulatory environment.
Over time, as we make these new capabilities available to more advisors, we will be able to capture improved margins across our platform as advisors serve a broader range of more complex client needs. Please turn to slide seven. We have a strong franchise in Canada, founded in many ways in our belief in the value of advice. This acquisition will make us even stronger and advisors even more central to our wealth strategy. IPC and Canada Life share a desire for long-term working relationships with advisors, and we both understand the support advisors need through their business life cycle. IPC's platform complements Canada Life's and elevates our advisor value proposition to another level. Leveraging our combined scale, we will be able to invest more efficiently in personal wealth solutions and technologies to attract new advisors and retain existing ones.
As we continue to build our capabilities over time, we'll offer a broader range of competitive product solutions, and advisors will benefit from our combined mutual fund, segregated fund, securities, and discretionary dealer platforms, particularly as they adapt to Canada's evolving regulatory environment. Finally, by expanding our practice management and succession support, we can ensure advisors have both the choice and flexibility to create, run, and retire from their business while feeling confident there will be a continuity of advice for their clients over time. We strive to be the leading destination for independent advisors, and by acquiring IPC, we are proudly creating an infrastructure to serve advisors efficiently and effectively through their careers. Please turn to slide eight.
As we've been saying, acquiring IPC accelerates Canada Life's wealth strategy by extending our wealth management reach and capabilities, which in turn helps advisors better meet the needs of more Canadians. With this deal as one that benefits all of our key stakeholders, clients, advisors, and our shareholders. Clients gain more access to advice for managing and protecting their wealth, a comprehensive set of solutions to meet their needs, and digital tools to help them achieve their goals. For advisors, we've talked a lot about how they will benefit through access to increased support and a broader range of competitive product solutions. This will enable them to better engage in portfolio design and construction, the disciplined selection of money managers, portfolio monitoring, and ongoing oversight. Finally, when we successfully serve advisors and clients, our shareholders win.
Through the addition of IPC's capabilities, we will be able to capture improved margins through an expanded range of structured products, managed solutions, and unique platform offerings. In summary, the acquisition of IPC expands our reach and gives us the scale to improve margins, invest in additional capabilities, and participate in further market consolidation. I will now turn the call over to Garry.
Thanks, Jeff. I'll spend a couple of minutes on the transaction financials. Canada Life will acquire IPC for a total cash consideration of CAD 575 million. This is expected to be fully funded from existing cash resources. The purchase price represents approximately 13x the pro forma 2023 EBITDA of CAD 43 million, which includes immediate expected fixed cost savings. As noted, IPC will continue to operate independently in the medium term. Over time, we expect to evolve to a single platform, leveraging the advantages of greater scale for the benefit of clients and advisors. We have not factored in the potential costs and the benefits of that longer-term direction into this financial summary.
The IPC business today is profitable, and the transaction is expected to be modestly accretive to Great-West Lifeco after two years, taking account of the foregone investment income on the cash used for funding and the estimated impact of the amortization of intangibles. Transaction and integration costs of CAD 25 million pre-tax are expected over 12 to 18 months after the deal closes, primarily related to technology-related transition and retention. The impact on Canada Life's LICAT ratio is expected to be approximately 3 points. Lastly, the transaction is expected to close by the end of 2023, subject to customary regulatory approvals. I'll hand it back to Paul now for closing thoughts.
Thanks very much, Garry. Please turn to slide 10. I'd like to conclude by reiterating how pleased we are to be moving forward with this transaction.
The acquisition of IPC accelerates Canada Life's strategy to establish a leading wealth management platform for independent advisors and their clients. It adds significant scale to Canada Life's existing platform, provides a range of new competitive product solutions, and enhances practice management and succession support for advisors. Ultimately, these strengths will help advisors better serve their clients, setting them up for long-term growth and success in their business. With that, I'll ask the operator to open the line for questions.
Thank you. We will now begin the analyst question-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Doug Young with Desjardins Capital Markets. Please go ahead.
Hi, good afternoon or I guess good evening. I got a few questions here. Just maybe bigger picture, Paul. I mean, your debt-to-cap ratio is 35%, give or take. You know, I thought lowering the debt-to-cap would be more of a priority for capital. I know the cash flow coming in from the U.S. deals is earmarked for that as well. I'm just wondering your thoughts in terms of measuring deployment of capital against debt reduction versus a deal like this. Can you remind us what your target debt-to-cap ratio is and how long it might take to get there?
Yeah. I'll Thanks, Doug. I'll start off by just talking about priority. You know, when I think about priorities, for sure we've been actively reducing our debt, our leverage ratios. You know, when a strategic opportunity comes along, you have to really consider, you know, how you wanna move on that and the speed in which you want to move on it. We saw this as a highly strategic transaction for Canada Life. It's been actually an entity we've had a keen interest in for quite a long time. The opportunity actually, you know, came to be now, we decided that this was a priority.
Having said that, we fundamentally are very focused on working down our leverage ratio, and I'll let Garry speak to that. Garry?
Yeah, sure. A couple of things to note. First off, I think we called this out at the Q4 call, that we do expect with the transition to IFRS 17 that our LICAT ratio would be increasing by 10 points or so. We certainly have the regulatory capital room for this. In terms of, given that room and the size of this transaction, we don't see this having any impact on our plans that we have in 2023 for deleveraging, and that's primarily the debt we're looking at there is the short-term debt related to the Prudential acquisition. We don't see this impacting our ability to get at that debt and reduce the leverage ratio.
That's really the only debt repayment that was on the horizon in the near term. I think we can, we can do both the strategic and move on reducing our leverage ratio.
Okay. Just maybe Garry, a few of the financials. You said the first two years, is it dilutive in the first two years? When you talk about dilution or accretion, is that before the intangible amortization? Sorry, I missed that.
Garry, you can take that one.
Yeah, yeah, sure. In the first couple of years, I'll set aside the transaction costs. They, you know, that's obviously going to be a bit of a drag. I mean, the numbers are quite small, regardless. When I was talking to modestly accretive in two years, that includes the amortization of intangibles. That's all in. That's after the, I just referred to that period because that's after the integration period, there's no integration cost money in the story. The, I mean, the numbers are quite modest. They're in that sort of penny a share range. They're not large.
I think the all-in, if you put all the expenses in the first year, which would be 2024, then it might be CAD 0.01 or maybe CAD 0.02 going the other way. It'll be if I put all the integration costs in. It's quite modest there. Obviously, longer term, this has a lot of value to add.
Yeah. Then can you quantify, you talk about the fixed cost save. Be quantified what that is?
Yeah. The initial fixed costs that I put into that when we were talking about the pro forma 2023 EBITDA, that would be about CAD 3 million upfront in terms of relative to the current run rates, we're expecting to be able to add.
Okay. Lastly, just the, you know, these types of transactions, you're buying people, advisors. Is there an earn-out in this? Is there retention benefits? Is that part of the acquisition price? Is there stuff on top of that, and can you quantify that?
Yeah. I'll take that one, Doug. It's Paul. As we looked at this transaction, the first thing we're doing is we're actually keeping the IPC platform separate and distinct from our Canada Life platform. There's a lot going on in the industry now with the emergence of a single regulatory body overseeing both MFDA and IIROC dealers, and that has to play out. We're looking for technology solutions that could enable an end-to-end platform. Ultimately, the integration costs are really modest because we're really keeping these as separate. We're keeping these as separate platforms. The bottom line is, we don't see, you know, a lot of pressure there.
In terms of retention of advisors, is there any programs you put in place to keep people in place or?
No.
no?
We actually what we see is we're actually going to be strengthening the value proposition for advisors. I mean, the reality is we're always managing advisor relationships. It's part of the blocking and tackling every day in the business. We don't see this as an environment we're gonna do that. We're actually gonna be adding value to advisors on the platforms. We're not going to be asking advisors to actually shift platforms. There's no change for advisors. They'll be able to carry on with their businesses, but we'll be there with capital to enable them. Jeff, do you wanna add something?
Yeah. Just Doug, to add to that, I think Paul put it well. The leadership of IPC will stay intact, which is critically important and very much to their success thus far. We'll continue it as an independent body. It's business as usual, and we'll begin to add to the practice management and to the value propositions and collectively working together on building the value prop longer term.
Okay. That's all from me. Thank you.
I think I'd just add-
Garry, you wanted to add something?
I just wanted to add that 'cause I think this might have been where you're going, Doug. We're not anticipating substantial additional costs other than what I called out earlier in terms of the integration costs. We're not anticipating additional costs over that. That was an all in when I was referencing that integration cost.
Appreciate the color. Thank you.
The next question comes from Tom MacKinnon with BMO Capital Markets. Please go ahead.
Yeah. I mean, two questions here. The first one is the EBITDA for IPC for 2022 is CAD 33 million. Just wondering how you get CAD 43 million next year. I got CAD 3 million of that CAD 10 million difference as a result of these immediate cost saves. Then a follow on really just with respect to the strategy and how it kinda fits in with the whole Power organization here. If you can answer the first one, that'd be great, and then we can move on to the second.
Yeah. I'll turn the first question to Gary.
Sure. I think, a large part of what's happened in 2022, like we would estimate the current is about a run rate of about CAD 40 million, and that's gonna reflect two things moving over and above 2022. One is just the markets have improved obviously since some of the earlier turmoil in 2022. That's been a pickup. Plus, there were further, IPC had made further capital deployment in 2022 in terms of investing in their business. The benefit of that is arriving in the EBITDA in 2023. You're seeing the benefit of both little higher markets and a little, and some capital deployment by IPC last year.
Okay, thanks. Presumably, you get leverage from IGM with respect to the IG consultant distribution network. Why couldn't you do essentially the same without owning it with respect to IPC? What's the additional value here in terms of owning it? How do you justify to shareholders that even on a EBITDA basis, this IRR is about 7%-8% at most? Like, how do you, what's your answer to those kind of two questions that I proposed?
Tom, I'll come back, we'll come back to the IRR because I think we view the IRR as a lot stronger than that for sure. I think this goes back to the fundamental strategy that Canada Life operates with an independent advisor channel, with over CAD 50 billion in assets under administration. Broadly, though, focused on segregated funds and mutual funds. As we look to the IPC platform, we see a platform that has a more diverse product offering that includes mutual funds, IIROC capabilities, and also discretionary managed accounts. That diversification of products being added, along with the scale of CAD 31 billion of incremental assets and 650 advisors, is now positioning us with one of the largest independent wealth managers in Canada. It'll give us the scale to invest.
We see opportunities to advance those products across the broader range of advisors. This is strategic. It's quite and I would also note that IPC is actually operates separately from the IG consulting or the IG Wealth Management channel. These are very separate businesses. It's operated as an independent entity under Investors Group. I would say Canada Life is the best home for this for this entity from the standpoint that we'll be able to benefit from IPC, keeping them as a strong independent channel, along with the independent channels that we operate. From the standpoint of IRR, and maybe I could have Garry speak to that.
Tom, I'm not quite sure how you've got the 7%. That sounds like an IRR that might have no growth in it.
Well, it's the 43 divided by 575. 43 divided by 575.
Yeah. Yeah. That would just be, I would think that certainly is a current run rate. That really doesn't pick up the growth. We see this as a real growth prospect here. I think that's the answer to your question. It'll, you know, it starts out where it does at, as you say, 43 over 575. We certainly see the transaction as contributing to our 16% to 17% ROE target over time. I think the difference is just in the growth.
When you did that IRR calculation, did you do it, excluding amortization of intangibles or with it?
Yeah. When we look at the overall financials, you know, what the returns we're expecting on this, we would look at the bottom line earnings, for sure.
Jeff Macoun, you were gonna add?
I was just gonna add, Tom, and perhaps back to the top, we really believe. I mean, we operate in this independent space, and we believe that accelerates our vision of the place for independent advisors and their clients. We believe this is a significant growth play for us in Canada to attract advisors in the independent space. You know, we're starting with about CAD 85 billion, making us one of the largest non-bank wealth providers. The other thing which we haven't talked a fair bit about is, you know, we already have a significant footprint on the Canada Life side with Quadrus, and we believe that there's a growth engine there which allows us to demonstrate our commitment to the wealth business.
It allows us to give greater access to that group through an IIROC platform. Immediate new expertise in this space as well and provide significant scale. We believe there's a number of growth opportunities within the franchise.
Okay, thanks.
Okay. Thanks, Tom.
Once again, if you have a question, please press star then one. The next question comes from Paul Holden with CIBC. Please go ahead.
Thank you. Good afternoon. You've made a number of references to the evolving regulatory environment, which I'm assuming refers to the blending of IIROC and MFDA. Just wondering how ready is IPC today, I guess most importantly from a systems perspective, how much investment is still required? Do you anticipate making some of that investment after the transaction closes end of 2023, or will it be substantially complete beforehand?
Yeah. Thanks. Good question, Paul. As we outlined in our comments, we're going to keep for the next for the foreseeable future, we will be keeping the IPC and our, and existing Quadrus platform separate as strong, independent, dealers. Ultimately, we do look to trying to migrate to a common set of technologies. The reality is today there is not a common platform out there that effectively serves both MFDA and IIROC advisors. Ultimately, yes, we will be looking to invest over time in providing that level of tools.
Ultimately, we're looking to serve advisors that they could operate with clients who might migrate and graduate from MFDA-style unitized solutions to IIROC solutions and to other solutions that might be, you know, more complex. Ultimately, I think that will be the target operating model that we're working towards and investing in. Those investments, though, will come following in 2023, and those will all be a function of having a strong business case where there's value creation behind it.
Understand. That kind of leads to my second question then, because there's also, a number of references to scale, and I just want to make sure I understand the significance of scale in this business. I think it's getting to what we were just talking about, which is the required sort of technology, operational investments, for this business and just having a bigger platform help to absorb that from a margin perspective. Is that correct, or are there additional benefits to scale in this, in this advisory business?
Yeah, I think the primary would be the fact that you've got a broader base of revenues on which you can spread costs out, for sure. The reality is scale also represents brand and significance in the marketplace where there's trust from the standpoint of advisor channels. You're gonna be a stickier platform if people believe that you're fundamentally committed to the business and investing in. Jeff, anything else you'd add?
I would just add to Paul's comment. I think it allows us to have a broader set of solutions that individually we don't have today, and there's an opportunity for that. It also allows us to have enhanced support by bringing the two together and longer term with a best-in-class experience for both the advisors and clients. By bringing the groups together, there's greater leverage for us to do more things in the marketplace.
Understand. Then I just wanna add a follow-on to one of the points you brought up, which is offering a broader set of solutions. My impression is larger scale gives you the capacity to develop a broader set of solutions in-house versus third party. Am I reading into that correctly?
That is absolutely. You've read into it exactly right. When you look at sort of wealth solutions and the evolution of wealth solutions, increasingly it's in-house managed account solutions, and we look at that opportunity to provide those if we've got that breadth of scale and capability. What we're acquiring in IPC is not only scale, we are acquiring capability. We're acquiring capabilities that were not resonant in our current wealth business. We're really not only growing the wealth business in terms of its scale, we're actually growing it in terms of our capabilities and our capacity to build those in-house solutions.
Okay. That's it for me. Thank you.
Thank you very much, Paul.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Mahon for any closing remarks.
Thank you very much, Charisse. Listen, I wanna thank everyone who joined us this afternoon on fairly late notice. We appreciate you taking time. We really also appreciate your questions and your interest. If there are any follow-up questions, we encourage you to reach out to our investor and relations team. Thank you very much.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.