Apollo completes Aviva USA deal for $2.6 billion
October 4, 2013 by Victor Epstein
New York-based Apollo Global Management completed its purchase of Aviva USA on Wednesday for $2.6 billion. The West Des Moines-based insurer is being incorporated into the private equity firm’s “Athene” insurance arm, and being rechristened “Athene USA.”
The deal for Aviva USA has been pending since December, when Apollo won a bidding war for the company with a $1.8 billion offer to its London-based parent. Aviva USA was first placed on the auction block in April 2012. The initial deal was subject to a prolonged review by state insurance regulators concerned by the entry of private equity firms into the staid insurance sector.
Apollo is primarily keeping the annuities part of Aviva USA. It also announced the completion Wednesday of the long-expected sale of the traditional life insurance side of the business to Global Atlantic Financial Group for an undisclosed sum.
“Apollo is pleased that Athene’s acquisition of Aviva USA’s fixed annuity business has been completed,” Apollo co-founder Marc Rowan said in a statement. “We believe the company is poised to rapidly integrate Aviva USA’s annuity operations and enhance Athene’s position as a leading retirement services company. We look forward to the continuing success of Athene as it seeks to deliver outstanding service and consistent results to its policyholders.”
Annuities are popular with retirees and the financial planners who cater to them because they offer steady returns after an initial period of investment, often for decades.
The final price-tag for Aviva USA is $800 million higher than the original price Apollo agreed to pay for the insurer, which employed 1,800 people in the U.S. and 1,400 in the Des Moines area as recently as May 1. Employment and annuity sales there have plunged during its prolonged sale.
Athene President Grant Kvalheim attributed the higher price to earnings by Aviva since June 2012. The initial offer was based on its financial performance as of that date, he said.
“There’s been no change in the inherent value of the company or the basic deal,” Kvalheim said. “We’re thrilled that this day has finally arrived and that we can begin to grow the company.”
Aviva USA has been a key economic engine locally, spurring residential and commercial development in West Des Moines. However, about 43 percent of the 1,800 people employed there as of May 1 have either left or been told their jobs are being eliminated. Sales of Aviva USA’s indexed annuities fell 55 percent to $504 million in the second quarter, even as industry sales as a whole expanded 5.5 percent to $9.2 billion from a year-ago, according to the Wink’s Sales & Market Report.
Athene Chief Executive Officer Jim Belardi has indicated that he plans to continue to build the annuity business via acquisition. Apollo’s insurance arm, which made its operational headquarters in Greenville, S.C. until Wednesday, is consolidating its operations in West Des Moines and adopting Aviva USA’s former headquarters as its new operational headquarters.
The deal makes Athene, which had $14 billion of assets in December, one of the largest fixed annuity companies in the United States with $60 billion in assets.
“Our acquisition of Aviva USA is a transformative event that significantly increases the scale of Athene’s fixed annuity business,” Belardi said in a statement. “We are excited about our prospects for further profitable growth.
Athene’s holding company is legally headquartered in the Bermuda tax haven. Its largest shareholder is AP Alternative Assets, L.P., a publicly traded company based in a Channel Islands tax haven and managed by Apollo.
Critics of the deal have alleged that Apollo intends to siphon hundreds of millions of dollars form Aviva USA via asset management fees. The deal will increase Apollo’s assets under management by about $45 billion to $158 billion, according to the private equity firm.
“Apollo currently provides asset allocation and related services to Athene and directly manages a portion of these assets across its investment platform, primarily in its credit business,” Apollo said in a statement. “Going forward, Apollo will provide similar asset allocation and investment management services for Athene’s newly acquired annuity assets. “
Iowa Insurance Commissioner Nick Gerhart approved Apollo’s bid for Aviva USA in August, after establishing a series of conditions to ensure the private equity firm complied with insurance industry norms.
Gerhart said at that time that he’s sensitive to Aviva employee concerns, but European insurers are shedding their U.S. operations and hedge funds and private equity firms like Apollo are the most active buyers. The final three bidders for Aviva USA were all either private equity firms or those with hedge funds. There were no traditional insurers in the mix.
“As in any transitional period, there will be some reorganization,” Gerhart said in August. “Unfortunately this means some Aviva USA personnel will have jobs eliminated. However, both Athene and Global Atlantic have committed to being in Iowa and have plans to keep many employees permanently.”
