Takeover preserved London Life brand

(October 2006) Nearly a decade after being acquired by Great-West Lifeco, London Life Insurance continues to grow while building both its assets and presence in the Canadian market.

Ray McFeetors, CEO of Winnipeg-based Great-West Lifeco, says it was always his intention to maintain the London Life brand after its $2.94 billion acquisition in November 1997, but it took some time to convert the non-believers.

The southern Ontario city’s mayor at the time, Dianne Haskett, said upon hearing the news that there would be “blood in the streets.” She wasn’t alone in her negative outlook. Many industry watchers and London Life employees alike were expecting GWL to flex its muscles by swallowing the company, eliminating the name from the financial landscape, moving jobs to Winnipeg and reducing the London office to a satellite operation.

McFeetors says there was never any question in his mind that London Life would be retained as a stand-alone company, one that would share best practices and find synergies with its parent.

“When you have a brand like Freedom 55, you’re not going to voluntarily destroy it. It would be like General Motors saying it’s going to do away with Cadillac. It just doesn’t make any sense. You would have thought people would have understood that,” he says.

After all, McFeetors says, an insurance company has no natural resources. Because it essentially manufactures promises, its primary assets are its people.

“When you buy a financial institution, you’re buying the people. So, to think we were going to destroy all the people after spending $3 billion buying London Life…even a high school student would be able to grasp that, you would think,” he says.

He says the London-based divisions, the retirement investment services, group retirement services and the individual area are now growing very quickly and that’s filtered down to some impressive financials. London Life’s assets under management have grown from $26.7 billion when the acquisition was made to $49.4 billion. Revenue grew from $5.8 billion to $9.3 billion over the same time frame while premium income jumped from $4.2 billion to $7.4 billion.

But Windsor-based analyst Dan Hallett says the happy marriage between the two companies is the exception rather than the rule.

“It’s more common to see the target company disappear and be absorbed in a relatively short period of time,” he says.

To illustrate, he points to CI Fund Management’s purchase of BPI Financial in 1999. The new owner quickly rolled most of BPI’s funds into its own, keeping a select few on its shelf.

“Eventually it wrapped almost all of them up [into its own funds]. Now BPI is almost nowhere to be found in its fund line-up,” he says. “That often happens in financial services, especially on the mutual fund side. A company will hollow [an acquisition out], take the revenue from it and move on. That’s their way of extracting value,” he says.

Not in McFeetors’ mind. But as potentially tumultuous as the GWL takeover might have been for London Life, it could have been even bumpier for the buyer if the deal hadn’t been consummated. McFeetors says he’s not sure GWL would have survived without it.

“We probably would have been a target for somebody else, we might well have been sold,” he says, noting he didn’t feel Great-West had adequate size to be able to compete on its own over the long run.

“London Life started to give us scale in Canada, especially in the individual markets. And the strength we got from that, not only in earning capacity but management capacity as well, allowed us to do the Canada Life deal [in 2003] successfully,” he says.

Of course, London Life very nearly had a different owner back in 1997. That spring, the Royal Bank launched a $2.4-billion hostile takeover bid. McFeetors says the perception in London and with London Life employees in general was that Canada’s largest bank didn’t have a large insurance operation. Therefore, they thought London Life would be maintained largely intact under its ownership.

That may have been the case, but McFeetors doesn’t think London Life would have experienced the growth it did under GWL’s ownership.

“They didn’t have the tools, the experience or the background [in insurance] that we did. The reality is, from the perspective of the London community, the growth of London Life has been very much larger than it if had been acquired by the Royal Bank,” he says, noting London Life’s employee base has grown from about 1,600 at the time of the acquisition to 2,500 today.

A pair of long-time London Life employees shares McFeetors’ sentiment. But Rick Rausch, a senior vice-president who has been with the company for 30 years, admits there were more than a few sweaty palms when the news of a new owner spread like wild fire through its majestic downtown London head office.

“There’s always apprehension and concern [with an acquisition] because people don’t know what the future is going to hold. It was even like that when we were the acquirer of Prudential a couple of years earlier. People were on a teeter totter trying to figure out what was going on. Of course, there were rumours flying all the time,” he says.

That being said, he says Great-West buying the company is the best thing that could have happened.

“It helped us get aggressive and serious about the investment fund business. We had only been tinkering with it before then,” he says.

Today, Quadrus Investment Services, its mutual fund arm, is approaching $5 billion in assets under administration, up from less than $1 billion six years ago and it has arguably the largest sales force in the country with nearly 3,900 registered representatives. London Life’s segregated fund business, meanwhile, has grown from $1.3 billion at the end of 1996 to $10.7 billion at the end of July 2006.

Nick Pszeniczny, senior vice-president of Freedom 55 Financial, who has been with the company for 24 years, says Great-West “permitted us to do a lot of interesting strategic changes and deliver a lot of tactical changes.”

Pszeniczny says each company brought its own strengths to the partnership — Great-West was a premier group provider while London Life’s expertise was on the individual side.

“We’ve repositioned the companies and maximized the opportunities,” he says.

Perhaps the most critical move was the rebranding of its distribution organization from the London Life sales force to Freedom 55 Financial.

“We enjoy tremendous market exposure. We wanted to move off the London Life name so we would be perceived as a broader, full financial planning organization and not just an insurance company,” he says.

No matter what kind of company it has become, it’s one of the largest employers in the city of more than 335,000 with roots going back to 1874. McFeetors says London is a relatively small community and it’s more directly affected by the moves of its corporate citizens.

“As important as Great-West is to Winnipeg, London Life is more important to London,” he says.

That’s partly why he says he’s gone out his way to make London Life’s presence felt throughout the community by maintaining support for charities, the arts and other causes. Last November, the company honoured all of its people who had served in World War Two. McFeetors, an honourary Colonel of the Royal Winnipeg Rifles — he’s the liaison between the unit and its Colonel-in-Chief, Prince Charles — participated in the ceremony in full uniform.

“I was thrilled I was able to do it that way,” he says.

As if to prove his commitment to the London Life employees, McFeetors put Great-West’s money where his mouth was when it came to their well-being. It renovated a 7,500-square foot space in the basement and put in a state-of-the-art fitness centre, complete with free weights, cardio machines as well as strength training and other classes. Open seven days a week, half of its trainers are London Life employees.

The cafeteria was also given a major overhaul. Gone was the dingy, over-crowded space to wolf back burgers and fries. In its place is a brightly-lit, spacious facility with a diversified menu that would be the envy of many a restaurant.

“I believe people have to eat well. The cafeteria touches every employee every day. If they have a good experience in the cafeteria, the food’s good, it’s reasonably priced and it’s a nice environment, they tend to internalize that and apply it to their jobs,” he says.

“Our only asset is our people so we look after them.”

Geoff Kirbyson is a Winnipeg-based freelance financial writer

(10/02/06)