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Paul Mahon, CEO of Great-West Lifeco, poses in Toronto in 2015.The Globe and Mail

Paul Mahon chuckles when asked if it took a global pandemic and the interest rate cuts that followed to get Great-West Lifeco Inc. out on the takeover trail.

“We were always busy looking at growth opportunities,” said the Winnipeg-based chief executive officer, who committed $6-billion to three acquisitions in the past four months after several relatively quiet years on the takeover front.

Mr. Mahon, who has run the insurer and wealth manager with $1.4-trillion in assets for the past seven years, said the COVID-19 pandemic that swept through North America beginning in March has changed potential sellers' willingness to listen to offers and make deals.

“Every company has reviewed its businesses, and its balance sheet, during the pandemic and there’s now a sense of urgency as we move forward,” Mr. Mahon said in an interview. He said Great-West was able to move quickly this summer because, after spending years “building muscle” across its business units, “we had high confidence in our ability to execute on opportunities.”

The CEO and analysts say there may be more acquisitions to come, as the wealth management industry continues to consolidate around its largest players. With the backing of its controlling shareholder, the Desmarais family’s Power Corp. of Canada, Great-West plans to keep shopping.

Like musicians who hone their skills for years in order to become overnight sensations, Great-West’s busy summer reflected work that started in 2014, when the company acquired J.P. Morgan’s U.S. retirement services business, which had US$167-billion of assets under management.

Under that deal, Great-West began administering pension plans for many of the largest U.S. companies under a new brand name, Empower Retirement. Along with A-list clients, the acquisition gave Great-West a state-of-the-art technology platform.

Mr. Mahon said Great-West began preparing for the spread of the novel coronavirus in early February, when the pandemic began to have an effect on the company’s Asian operations. By late spring, the company was largely operating through remote work, a move Mr. Mahon said was time-consuming but relatively straightforward, as Great-West divisions across the United States and Canada have always worked relatively autonomously.

Great-West’s Denver-based Empower division went into the pandemic as one of the two largest U.S. players in its sector – only Boston-based Fidelity is bigger. That heft, and the ability to shift new clients onto its system with minimal extra cost, gave Mr. Mahon the confidence to outbid rivals for two U.S. businesses in the summer months.

In June, Great-West agreed to pay US$1-billion for California-based online wealth manager Personal Capital, a company known for its technology, and rolled the business into Empower. Later, the Canadian company snapped up the retirement benefits division of Massachusetts Mutual Life Insurance Co. – known as MassMutual – for US$3.35-billion. The two acquisitions opened new markets running pension plans for small to medium-sized businesses and clients such as governments and unions, along with significant cost-cutting opportunities.

In September, Great-West and its Canadian fund management division Mackenzie Financial Corp. acquired a 70-per-cent economic interest in Toronto-based Northleaf Capital Partners Ltd. for $245-million, adding products targeted at pension funds to Mackenzie’s portfolio of investments for individual investors. The economics of the takeovers got more attractive when Great-West paid for these acquisitions by borrowing money at rock-bottom rates.

Great-West expects to save up to US$160-million annually by shifting 2.5 million clients who are currently on three different technology systems at MassMutual to one platform at Empower. This migration is expected to boost Great-West’s profit by 5 per cent in 2021 and by 10 per cent annually once the two businesses are fully integrated in 2022. When the MassMutual deal closes this fall, Empower will serve 12.2 million customers with US$834-billion in 67,000 pension plans.

Great-West is paying a relatively high price as it buys new businesses, according to analysts. Darko Mihelic, who covers the insurer for RBC Dominion Securities Inc., said Great-West paid 25 times annual earnings for the MassMutual division, while the Canadian company’s stock is trading at 10 times earnings. “Management indicated that they won the [MassMutual] transaction through a relatively competitive auction,” Mr. Mihelic said.

However, Mr. Mahon said acquisitions have become more attractive during the pandemic because interest rates declined for companies with strong balance sheets – S&P gives Great-West debt a double-A credit rating. Great-West financed the MassMutual takeover by borrowing a total of US$2-billion, including US$1.5-billion of long-term bond sales consisting of seven-year debentures paying 1.357-per-cent interest and 10-year debt with a 1.776-per-cent rate. Great-West expects to pay back at least US$500-million of debt within two years, tapping the savings generated from integrating businesses.

In a business where scale and the ability to use technology are becoming increasingly important, Mr. Mahon said Great-West has the full support of Power Corp. as it scouts for additional acquisitions in sectors such as U.S. wealth management.

Adding more clients to one arm of Great-West means potentially winning business for the company’s other divisions, such as U.S. wealth manager Putnam Investment LLC, acquired in 2007. Every year, individuals retire with company pension plans run by Empower and transfer about US$30-billion into their personal accounts. Great-West can keep managing these savings if it shifts clients into Putnam or other arms of the company, a strategy that would keep working long after the pandemic ends.

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