M&As still an option despite cost cutting, reveals Great-West CEO

Great-West head discusses firm’s restructuring program at Scotiabank Financials Summit

M&As still an option despite cost cutting, reveals Great-West CEO
While reducing costs is a key part of Great-West Life’s ongoing restructuring, it doesn’t rule out further M&As if the right deal presents itself. President and CEO Paul Mahon revealed as much as the Scotiabank Financial Summit in Toronto last week, outlining how he sees the business evolving in the coming years.

“It is making the right investments in technology and shifting your technology spend such that you are focused on customer reach and customer intimacy,” he said. “That is a fundamental shift that is going on.”

Enhancing its digital presence is a primary goal for Great-West and a major factor in the firm deciding to cut its staff by 1,500 workers earlier this year. After announcing the job losses in April, Mahon admitted it was a tough but necessary decision that needed to be made to ensure the firm’s future.

Speaking at the summit in Toronto, he explained how cutting back in certain areas would allow Great-West to expand in business arms that offered much more growth potential.

“In cost management you have seen us restructuring in various segments of our business over the past while,” he said. “That is to drive down costs to be competitive. How do you shift from heavy operational costs, whether it is people or legacy systems, and be able to shift your spend into things where you can reach the customer differently?”

In reducing its wage bill, the firm plans to redirect capital into organic growth and acquisition. Great-West has been the foremost dealmaker in the life insurance space over the past decade, and while Mahon expects that activity to slow, the firm won’t be foregoing M&As altogether, as the recent Financial Horizons buy attests.

“Canada is about investment in organic growth, you could call it capital deployment but it is capital deployment into the business,” he said. “You saw elevated expense levels over the past 3–4 years. We recognize that it would have a dampening effect on earnings. I’m not going to say it is behind us, because this is a long journey, but the heavier spend is behind us now.”

He continued: “That’s not to say we don’t do acquisitions in Canada. We acquired the Financial Horizons Group because sometimes your capital deployment is not because you are going to make a huge step-rate change in your business, but perhaps you are going to acquire a new capability.”

With insurers now looking at direct to consumer models using digital platforms, Great-West remains committed to the advisor distribution model, explained Mahon. Life insurance is a complex product that is best sold by an expert, which is why the Financial Horizons deal made perfect sense for him.

“We really believe in advice distribution in Canada, so we wanted that acquisition,” he said. “We think it is more valuable to us than it was to the prior shareholder.”

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