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Recordkeeper Consolidation to Continue in 2017

Most of the M&A action will center on “the good number of regional banks, regional insurance companies and other entities in financial services realm who have captive, legacy retirement businesses.”

By John Manganaro editors@plansponsor.com | May 31, 2017
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During a recent conversation with PLANSPONSOR, Raghav Nandagopal, executive vice president of corporate development and mergers/acquisitions at Ascensus, took some time to explain the firm’s strategic vision for the near- and mid-term future.

Suffice it to say, Ascensus is charging full steam ahead on the goal of rapidly building scale, partly through organic growth but also through rapidly paced mergers and acquisitions. Not only would the firm like to grow, Nandagopal explains, frankly it must grow to ensure it can continue to reinvest in its serving offerings and new technologies.

Beyond the three acquisitions the firm announced in the last quarter alone, Nandagopal projects his firm will close anywhere from eight to 10 new acquisitions, on average, per year, for the foreseeable future.  

“Our bread and butter is the $3 million to $10 million space, but we are also considering larger targets up to $20 or $30 million,” he explains.

Nandagopal believes most of the M&A action will center on “the good number of regional banks, regional insurance companies and other entities in financial services realm who have captive, legacy retirement businesses.” Many of these providers are somewhat reluctantly serving this business as a non-core part of their identity and their value proposition, and it can be a struggle to meet service agreements with their limited infrastructure, he explains.

“As the margins for recordkeepers are squeezed more and more, this group will increasingly come to the conclusion that they do not want to be participating in the back-office functions of retirement plan recordkeeping and administration,” Nandagopal says. “Some of them are asking fundamental questions about whether they want to be or need to be in the retirement business at all.”

And so Ascensus is practicing what Nandagopal calls “the lift-and-shift strategy.”

“We come into these businesses and we tell them, ‘Look, this is a non-core part of your business and it is weighing you down and it is not sustainable long-term,’” he says. “We can help take it out of your hands and monetize it, in partnership with trusted asset managers.” This represents a win-win in that the selling firms are refocusing and extracting value from non-core parts of their business, while Ascensus rapidly expands its client footprint.

NEXT: The impact of consolidation on plan sponsors and advisers

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