As bidders prepare offers for units of American International Group, Canadian life insurers are running into a phenomenon they've never encountered before: There aren't enough U.S. investment banks to go around.
Manulife Financial and Sun Life Financial have in-house expertise in M&A, so what's playing out around AIG won't keep the locals off the field.
And the Canadian insurers will have no problem hiring advisers from domestic investment banks, which means they'll have takeover expertise and access to capital. Scotia Capital led Manulife's initial public offering, while RBC Capital Markets did the honours for Sun Life. So no prizes for guessing the locals that might bankroll this pair in the AIG sweepstakes.
But expertise in U.S. insurance acquisitions is suddenly at a premium, on the eve of what is expected to be a whirlwind auction of up to $28-billion (U.S.) worth of life insurance and wealth management divisions. (That $28-billion figure comes from a Credit Suisse sum-of-the-parts analysis last week of an AIG bust-up.)
The problem starts with the number of advisers already working on some element of the AIG rescue.
Morgan Stanley, an investment bank with deep historic ties to Sun Life, is advising the U.S. government on the $85-billion credit facility that's keeping AIG alive. So it's conflicted.
The same goes for JP Morgan and Goldman Sachs, both of which are advising AIG on the auction. Obviously, two former Wall Street powerhouses are not in the running: Bear Stearns and Lehman Brothers are out of business.
Market chatter has Merrill Lynch, Credit Suisse and USB Securities all riding foreign horses in this race, likely Asian, European or rival U.S. insurance companies. The prize steed is China Life, seen as the front runner for AIG's Asian operations, where the life insurance assets alone could fetch $36-billion if they're put on the market.
With the largest Wall Street dealers already tied up, look for M&A boutquies such as Lazard, Greenhill & Co. and Evercore Partners to play starring roles for buyers.
The AIG auction is expected to begin in earnest next week, and play out quickly, with sales being announced by the end of the year.
If the U.S. units are sold first, they will include a life insurance business that Credit Suisse estimates could fetch up to $5.9-billion, a group retirement products division worth up to $9.8-billion and an individual annuities business that could command up to $8.2-billion.
Great-West Lifeco is also a potential buyer of AIG operations, as it has a deep-pocketed parent in Power Financial. BMO Capital Markets has deep ties to Great-West. But there's a view that Great-West may sit out the AIG auction, as attention is focused on getting recently acquired Putnam Investments working right.
