Jack Ma’s MassMutual deal shows promise

2017.08.18 Reuters Breakingviews

HONG KONG, Aug 18 (Reuters Breakingviews) – The Alibaba founder’s unit Yunfeng Financial is buying MassMutual’s Hong Kong arm. The $1.7 bln deal with the U.S. insurer helps turn Yunfeng into a broader financial group, by adding insurance and pensions operations. Once again, Ma is melding online and offline businesses.

 

Yunfeng Financial, a small Hong Kong-listed firm backed by Alibaba founder Jack Ma, wants to become a broad financial conglomerate. A $1.7 billion deal it is leading to buy U.S. insurer Massachusetts Mutual Life Insurance’s Hong Kong operations will help – while borrowing from Alibaba’s playbook.

Yunfeng was an investment boutique until Ma’s buyout fund and partners took control in 2015. Today it acts as a broker, wealth manager and corporate financier – albeit an unprofitable one, given that it is still growing fast. The MassMutual business, with earnings of HK$1.1 billion ($140.63 million) last year, will give it a strong footing in insurance, wealth-management products and retirement funds. Meanwhile, the seller gets $1 billion in cash and a near-25 percent stake in the enlarged company.

The financial merits of the deal, in which Singapore’s GIC and Ma’s payments firm Ant Financial is also investing, are not straightforward to analyse. Yunfeng has yet to produce an estimate of the target’s embedded value, the standard yardstick for valuing insurers.

However, a person familiar with the matter says the price equates to 1.1 to 1.5 times last year’s embedded value. That would make this cheap compared to last year’s sale of a Hong Kong insurance business by Dah Sing, a local bank, for a multiple of nearly three times. Yunfeng declined to comment.

A surge in Yunfeng stock, of up to 30 percent early on Friday, also suggested this might be a steal. But this could equally be retail punters getting over-excited: the stock pared gains to close 5.4 percent higher. Previous deals by Ma in Hong Kong have generated similar excitement.

In any case, the strategic rationale seems familiar. The $420 billion Alibaba is increasingly dabbling in bricks-and-mortar operations, switching from an “asset light” strategy to one where it is investing more in traditional retail and in logistics. Similarly, here Yunfeng is blending the online and offline worlds, with its software engineers now effectively working alongside the agents that sell MassMutual products in Hong Kong. The U.S. firm, Yunfeng and Ant will also work together on initiatives like using “big data” to price insurance products. This looks like a deal with mutual benefits.