Your conference will begin momentarily. Please continue to hold. Your conference will begin momentarily. Please continue to hold. Your conference will begin momentarily. Please continue to hold. Your conference will begin momentarily. Please continue to hold. Your conference will begin momentarily. Please continue to hold. Your conference will begin momentarily. Please continue to hold. Your conference will begin momentarily. Please continue to hold. Ladies and gentlemen, thank you for standing by, and welcome to this special conference call to discuss MetLife's acquisition of Versant Health. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference is being recorded. With that, I will turn the call over to John Hall, MetLife's Global Head of Investor Relations. Please go ahead, sir.
Thank you, Roxanne. Good morning, everyone. We appreciate you joining us on short notice, and we're pleased to announce MetLife's definitive agreement to acquire Versant Health, a leading vision care company. Before we begin, I would like to point out that today's presentation may include forward-looking statements. It's possible actual results may differ materially from the forecast we make today. I refer you to slide two, titled "Forward-looking Statements" in today's presentation, which can be found on the investor relations portion of MetLife.com. In addition, this presentation may include references to non-GAAP measures, and reconciliations of these measures can be found in our quarterly financial supplements and other documents, which are also available on the investor relations portion of MetLife.com. Joining me on the call this morning are Michel Khalaf, President and Chief Executive Officer; Ramy Tadros, President, U.S. Business; and John McCallion, Chief Financial Officer.
Michel, Ramy, and John will offer prepared remarks that speak to the presentation I referenced earlier, which is available on our website. Following prepared remarks, we will have a Q&A session, and I respectfully ask that you limit your questions to the transaction at hand. Now, I'll turn the call over to Michel.
Thank you, John, and good morning, everyone. We are very excited to talk to you today about our acquisition of Versant Health, which will catapult MetLife to the position of third-largest U.S. vision insurer in this highly attractive and profitable market. Turning to slide three, as we announced, we are acquiring 100% of Versant Health from an investor group led by Centerbridge Partners in an all-cash deal totaling $1.675 billion. We believe this transaction is a perfect example of how MetLife is deploying capital to the highest value opportunities. Vision care is a capital-light business with strong risk-adjusted returns and high free cash flow generation. In short, it is right in the wheelhouse of our next horizon strategy. Versant is a well-run and well-respected leader in vision care. The firm's marketplace brands, Davis Vision and Superior Vision, have high name recognition and a track record of exceptional customer service.
MetLife will gain access to Versant's roughly 35 million members, and our customers will gain access to Versant's extensive provider network, which is one of the largest in the industry. The U.S. vision care market is characterized by a number of attractive features. It is expanding with a 5% annual membership growth rate and favorable demographic trends. It is predictable with well-established utilization rates and the ability to reprice at regular intervals. It is recession resistant. Like dental, it is a must-have service. We expect the combination of MetLife and Versant Health to create significant revenue synergies. The Versant team has deep product and service expertise and an experienced third-party sales force. When combined with the unrivaled distribution reach of our U.S. group benefits business, we see the opportunity to generate above-market growth in vision care.
For our group business more broadly, we expect the addition of Versant to help drive double-digit revenue growth in 2021. MetLife is the clear leader in the U.S. group benefits space with a 15% market share. We offer more than 35 group products and services, the most in the industry, and serve approximately 41 million U.S. employees and their dependents. This transaction builds on our recent addition of Pet Insurance, digital estate planning, and health savings accounts, strengthening our position as the partner of choice for employers across the country. Financially, we believe this transaction will create significant value for our shareholders. It will be accretive on day one to earnings and to free cash flow, and it will easily clear our risk-adjusted hurdle rate with an internal rate of return in the high teens. As always, we carefully weigh every use of capital against the alternatives.
Our goal is to achieve the right balance between investing in growth and returning capital to create long-term shareholder value. With Versant, our confidence could not be higher that we are making the right investment at the right time in the right business. As noted in our press release, we are also pleased to announce that we are resuming share repurchases. By the end of the year, we expect to complete the remaining $485 million on our current buyback authorization. Last but not least, we are financing this transaction 100% with cash on our balance sheet. As we noted on our Q2 earnings call, we ended the quarter with cash and liquid assets at our holding companies of $6.6 billion. Even after this transaction and the completion of our buyback authorization, we still expect to continue to be above our target range.
We are moving forward and targeting to close on the Versant acquisition by year-end. With that, I will turn the call over to Ramy Tadros.
Thank you, Michel. Turning to slide four, we believe this transaction represents the perfect strategic fit for our market-leading group benefits franchise. When you think about the progression of our group benefits business in recent years, it begins with a solid foundation we have built within national accounts, where we hold a 30% market share by premiums. From this stronghold, we have extended our reach into the mid-size and small business markets, where we see continued opportunities for growth. The next stage in the evolution of our group benefits business was our ongoing expansion of voluntary benefits across products, capabilities, and relationships. Voluntary continues to represent a tremendous growth opportunity as companies look to expand benefit options without adding costs. Our adjusted PFOs in accident and health and group legal plans have grown to more than $1 billion.
This brings us to our latest focus within group benefits, which is a strategic expansion into new adjacencies. We are continually scanning for products and capabilities that meet a customer need, strengthen our competitive advantage, and deliver strong risk-adjusted returns. Over the past year, we've entered three such adjacencies: health savings accounts, Pet Insurance, and digital estate planning. Two of these, Pet Insurance and digital estate planning, were done through acquisitions that are already exceeding our expectations. We are now accelerating this strategy with Versant, which will instantly make us a scale player in vision care. Turning to slide five, as Michel mentioned, managed vision care is an attractive business with annual market growth of about 5%. It is capital-light with highly predictable loss ratios. For the most part, managed vision care services include reimbursement for eye exams, glasses, and contact lenses.
These are generally purchased through a network of providers and retail stores with pre-negotiated discounts for service. To be successful in this market, scale is essential. A large network of providers combined with a large customer base forms an attractive and effective barrier to entry into the market. As highlighted on slide six, this industry is highly concentrated, with the top three players sharing roughly 80% market share. By acquiring Versant, we will move to number three in the industry with approximately 17% market share and a combined total of 38 million members. Beyond its large membership base, Versant has one of the broadest networks of independent providers in the industry and contracts with nearly every major chain. The provider networks and relationships that come with Versant were built over decades and are very difficult to replicate.
The time and effort required to do so creates a wide moat for any competitor to cross. Insurers with the largest memberships are best positioned to negotiate competitive rates with providers, and those with the broadest provider networks offer the best customer experience. By offering competitive pricing and access to broad networks, scale players become the insurer of choice for customers. This creates a virtuous cycle of self-reinforcing competitive advantage. Now, let me provide you with an overview of Versant's revenue mix on slide seven. About 75% of these revenues come from commercial accounts. This plays well with our strengths and will create an even more compelling value proposition for these clients. As you could see on the right-hand chart, roughly a quarter of Versant's commercial account revenues will come from employers with more than 5,000 employees.
As noted, this is the segment of the group benefit space where MetLife holds the largest market share of any company. Because Versant is relatively under-penetrated, precisely where MetLife is strongest, we see a tremendous opportunity to distribute Versant's products to our large national account customer base. Overall, Versant's existing customer base has more than 9,000 employer groups, the majority of which are regional and smaller accounts. These also represent a significant opportunity as MetLife has been growing in this space and plans to continue to do so. Slide eight really crystallizes the advantages of this deal. When you take the best of Versant and combine it with the best of MetLife, you get an engine that will drive faster revenue growth. Versant's product, pricing, and network are all world-class, and MetLife's relationship and distribution reach are second to none.
This is the combination that creates revenue synergies among larger employers who want to do business with partners that truly understand the unique needs of the most sophisticated benefits programs. MetLife is that partner. That's why our client base includes more than 90 of the Fortune 100 and over 80% of the Fortune 500. We know that when we add great products to the best benefits platform in the industry, we see rapid growth. I will now turn it over to John to discuss why this transaction is just as compelling for shareholders as it is for customers.
Thank you, Ramy, and good morning, everyone. Turning to slide nine, in addition to the strong strategic fit of this acquisition, vision care is a capital-light business with predictable and stable underwriting and generates strong free cash flow. We expect our leading distribution platform will be able to produce significant revenue synergies over time, which can contribute to above-market growth for MetLife in both vision care and group benefits overall. Importantly, we expect this transaction to generate high teens internal rate of return with an attractive payback period of less than eight years. Also, we ended Q2 with liquidity of $6.6 billion, which will provide us with more than enough capacity to comfortably execute this transaction. As Michel noted, post-deal and the completion of our current buyback authorization, we still expect to have liquidity in excess of our target level, which will provide us with continued financial flexibility and optionality.
Let me turn to some of the financial metrics. Despite the high intangible amortization, we expect the transaction to be immediately accretive on an adjusted earnings per share basis in 2021. Given the cash flow characteristics of this capital-like business, free cash flow accretion will be even greater. We expect accretion to grow over time based on the combined impact of revenue and business growth, as well as reduced intangible amortization. From a multiple standpoint, we've included an EBITDA multiple for reference, as this is a common valuation metric for health insurance companies. The Versant deal compares favorably on that basis. The 2021 price-to-earnings multiple of 18.6 times absorbs annual intangible amortization from purchase accounting of roughly $70 million. From our perspective, the most relevant metric is the 2021 free cash flow multiple of 12.9 times.
From day one, this business generates free cash flow, and given the low capital-intensive nature, has a strong free cash flow ratio, which is consistent with our focus over the last several years. It is not every day that you have an opportunity to invest in and grow one of your highest multiple businesses. It is even rare to be able to do so with such a compelling set of financial attributes. Let me assure you, when we evaluated this transaction, we took into full account the current and uncertain recessionary environment. For these reasons, we are confident that this is an excellent use of capital that will create value for our shareholders well into the future. I would now like to turn the call back to Michel to close.
Thanks, John. If I can summarize the deal on slide ten before we turn to Q&A, I would say it literally checks every box of what we're looking for in a transaction. The strategic fit with our existing employee benefits business is obvious. The boost to revenue is significant and responsible. This is not growth for growth's sake. The improvements to our financial performance are immediate. The returns are well above our cost of capital, and we are confident that this is a compelling use of capital. On our earnings call, I spoke of the many ways we are preparing MetLife to emerge from the current crisis in even stronger shape, becoming more efficient, gaining new customer insights, strengthening our culture, and remaining laser-focused on consistent execution. To these, we can now add scaling up our business to achieve greater growth and profitability.
With that, we would be happy to take your questions.
Ladies and gentlemen, if you have a question or a comment, please press one, then zero. Our first question will start with Ryan Krueger from KBW. Please go ahead.
Hi, good morning. Congrats on the deal. I just had a quick question. I know you mentioned you have a 15% overall market share in group benefits, but what's the market share in Dental specifically? I was just thinking, trying to get a gauge on kind of how high you think you could take the market share in vision over time.
Hey, Ryan, it's Ramy. I don't have the exact number for you, but we are a top three player in the dental market.
Got it. Just one quick follow-up. John, how long will it take before the intangible amortization runs off?
It's generally, I'd say, 10 years. It takes some time. It's quite a bit of intangible as part of the purchase accounting, so it's a good chunk of it. Over time, as I said, business growth will outpace what we're seeing in terms of intangible, and we expect good growth from this business.
Got it. Thank you.
Our next question is from the line of Eric Bass of Autonomous Research. Please go ahead.
Hi, thank you. Maybe building off of that last point on the growth opportunity, can you just talk a little bit more about what you see as the opportunity for the vision business post-2021? Do you expect to exceed the 5% growth rate for the industry over the near to intermediate term?
Good morning. It's Ramy here. The answer is yes. We do expect to be able to outgrow the industry growth here. That is going to come from really two areas. First, we think we can grow the pie. Remember, vision is a standard benefit that is offered at open enrollment. We will be deploying our enrollment capabilities that have fueled our growth in the past, and we are going to deploy those capabilities to the vision product. We therefore expect to drive higher penetration amongst employees in the workplace. I would emphasize that this is a proven capability that we have deployed with significant success to date. Second, for certain customer segments, and in particular national accounts, we do expect to take share.
As I've outlined, we're combining the best-of-breed product with the strength of our distribution and service capabilities in national accounts, and we therefore expect to gain share that way. Our record here also kind of speaks for itself.
Our next question then is from Tom Gallagher, Evercore. Please go ahead.
Thanks. Just a question at the billion 3 revenue that you're estimating for 2021, what kind of growth rate are you expecting from the most recent trend that Versant has produced? Say if you could give us maybe annualized from Q2 2020, and I guess relatedly, have there been any adverse impacts that you've seen from COVID on their business?
Yeah, Tom, I would just go back to our point that this is a business that grows, a market that grows around 5%. We expect to grow in excess of that. I think I would just land with that, and you can kind of model that from here forward. I would say the past financial information would support what we're saying will happen over time. In terms of the impact of COVID on this business, Ramy, you want to touch on that?
Sure. I mean, a couple of points on that one. First, as John mentioned, when we evaluated the transaction, we fully took into account the current environment that includes the macro environment, and that includes also the current specific unemployment trends and bankruptcies, especially down markets. All of the COVID impacts, if you will, have been fully factored into the pricing of the deal.
Ramy, had there been any meaningful adverse impacts? Because I think it's a smaller employer-focused company. Has it been meaningful or not too bad?
It's been relatively minor. I mean, you'd see some impacts more down market, like you've seen in other parts of group benefits. As I've mentioned, we fully took those into account. The benefit itself is a must-have benefit. It's a fairly cheap benefit. The utilization, with the usual ups and downs that people have seen in areas like dental, has been fairly predictable. We've incorporated all of that into the valuation.
Okay, thanks.
Our next question comes from the line of Andrew Klingerman with Credit Suisse. Please go ahead.
Hey, good morning. Good morning, everyone. You talked a bit about growing the vision product not only through Versant, but on your own platform. I'm kind of curious, could you talk about Versant's distribution and MetLife's ability to bring its own group and voluntary benefits products onto that distribution platform? If you're interested in that, what might be the timeframe for doing so?
Yeah, it's really us bringing their product through our distribution, right? Think about that pie chart, Andrew. They are a monoline player. Only a quarter of their business today is with those national accounts. We touch virtually every single one of those national accounts, and we touch every single national and regional brokerage network today. It's really about bringing that best-of-breed product and driving it through our employer and broker relationships. That's kind of where the synergy is coming from.
Got it. Not even going into their smaller regional accounts.
That's, I would say, is there, and that's a secondary element that would drive growth, where just because the smaller and regional markets are more fragmented, we will look at their portfolio of smaller and mid-size accounts, which we would look to further penetrate. In that market, Dental would be the most commonly bundled product as well as others. I would say primary is in the upper primary synergy is in the upper end of the market, and a secondary synergy would be to cross-sell our products into their small to mid-size customers.
Got it. That would be primarily Dental. It sounds like something that you would not really be focused on initially. Is that right?
No, I wouldn't say that. I think we're going to drive hard across both types of synergies. In dollar terms, the first one is larger. I would also remind you of the other synergy with respect to penetration that I've talked about. We have perfected enrollment and re-enrollment in the workplace, and we're going to take those same capabilities around education, employee engagement that we've talked about extensively in our invest today, and we're going to apply those capabilities to that vision product. Clearly, these are capabilities that Versant doesn't have today as a monoline vision provider.
Interesting. Just one more point on the secondary. I know Met has developed an accident product. Would that be something that you would put on the Versant platform as well?
I would say we're going to look at their customer base, brokers, and employer relationships. Customer by customer and segment by segment, we would look to bring in the entire spectrum of what we offer today, including voluntary as well as core products.
Got it. Thanks a lot, and congrats.
Thank you.
Our next question comes from Suneet Kamath, Citi. Please go ahead.
Yeah, I just had a couple of questions. First, in terms of slide nine on the projected financial highlights, do any of these numbers include the synergies that you're talking about, or is this just all sort of organic growth on a standalone basis?
It's the latter, Suneet. It's all organic growth. It does not include the synergies yet.
Okay. I wanted to come back to the capital. I guess what went into the decision to resume buybacks, just kind of given the ongoing uncertainty? Obviously, you're laying out a fair amount of cash for the deal. Just curious, what went behind that in terms of the announcement in conjunction with this transaction?
Yeah. Hi, Suneet. That's Michel. As you know, in March, given the uncertainty with the economic environment with the pandemic, we put our share repurchases on pause. I mentioned last week at an investor conference that we were feeling better about the environment. Clearly, there are still uncertainties out there. If you look at the resiliency of equity markets as well as the tighter credit spreads, obviously beneficiaries of government and Federal Reserve policy, we were feeling better. I did say that we would not rule out share repurchases between now and year-end. Those are the factors that went into our decision to resume share repurchases. We were sitting on $6.6 billion in liquidity at the end of the second quarter. That gave us significant financial flexibility. We feel good about proceeding with the transaction and resuming the remaining portion of our share repurchase authorization.
I would also say that even after the transaction and the completion of the buyback authorization, we still expect to continue to be above our target range. Those are some of the factors that went into the decision.
Got it. If I could just sneak one more in, just on slide seven where you talk about the commercial accounts, have you looked at the overlap between your existing customer base and that of Versant? Is it significant?
We have. I mean, it's a lot less significant down market, as I've mentioned, because that's a far more fragmented market. There is some relatively minor overlap up market. We've looked at that, and we clearly factored that in as we thought about the revenue synergies here.
Okay, thanks.
Our next question is from Elyse Greenspan, Wells Fargo. Please go ahead.
Hi, thanks. Good morning. My first question sticking to that slide on the financials maybe from a different angle. Even with absorbing those intangibles through the adjusted earnings, it does seem like that's a pretty good margin for that business. Can you just give us a sense on the expense side? Are there some synergies there? How would you be thinking about the margin as you kind of grow the revenue over time?
Thanks, Elyse. Good morning. We do believe it's an attractive margin business. As we've talked about, it's low capital intensive. It's not interest sensitive. We've also talked about just in general, we think the execution risks of this transaction are low. We think about risks of synergies and integration. As we said, we're very excited for this opportunity here, and we think it's a unique opportunity. In terms of margins, I would say from a benefit ratio perspective, it'll fit right within our non-medical health ratio. From the expenses, limited expense synergies will maybe over time, but we're bringing that operation over to us. We'll integrate it fairly quickly, but expense synergies is generally a limited item when it comes to the transaction.
Okay, great. Will this be structured? Will it be set up as a direct subsidiary of the holding company, or will it be included under your insurance company?
It'll be a direct subsidiary of the holding company. It is set up with a few subsidiaries. There are a few that are insurance, and there are a few that are non-insurance.
Okay. Can you just remind us what is the remaining dividend capacity you have from your insurance companies for the balance of the year?
I don't have that handy, so I'd have to get back to you on that. It would be in our disclosures, though.
Okay, thanks, John.
Our next question is from Humphrey Lee, Dollina Partner. Please go ahead.
Good morning, and thank you for taking my questions. I guess staying on the expense side, in addition to the $1.675 billion that you are paying for the platform, are you anticipating any kind of expenses that you have to incur as investments as you try to build out the platform over time?
Hey, good morning, Humphrey. As we said, yeah, we think the risks of synergies integration here are low. Actually, integration costs are fairly modest, and it would just fit within our general envelope of expenses in annual year. We would still expect to hit our direct expense ratio even with the investments needed for integration.
Got it. In terms of the intangible amortization, you mentioned that kind of usually is around 10 years. Is it going to be a flat line, or is it going to be kind of a grading down over time? How should we think about it over the account?
Yeah, it's actually probably more like 10 plus. It's a little more than 10. It's generally flat, straight line, and it starts to tail off in the latter part of the years, but it's generally flat for most of the time.
Got it. Thank you.
We have a question from the line of John Barnage, Piper Sandler. Please go ahead.
Thank you. Can you talk about utilization rates for vision at Versant in the first half of this year versus the first half of last year?
Sure, John. It's Ronnie here. Just like what we've seen in Dental with the pandemic shutdowns, you've seen a dip in utilization kind of starting late March, April, May. That has come back as the economy started to open up. This is an annual benefit, and it's a very simple benefit. Our expectations are that on a full-year basis, people who need that pair of glasses will go and get it, and people who need the annual exam will just go and get it. On a full-year basis, we would think utilization would be roughly at expectation, similar to 2019, with clearly the seasonality in terms of the dip in April and May.
Okay, thank you.
At this time, there are no other questions in queue.
Great. Thank you, everybody, for joining us on short notice. We appreciate your flexibility, and we are very pleased to share this acquisition with you. Thank you very much.
Ladies and gentlemen, that concludes our conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.