Chesnara is to acquire Sanlam Life & Pensions (SLP) for £39m, its first UK deal since 2013. The price paid equates to 1x Chesnara’s estimate of SLP’s FY20 Own Funds, and a 19% discount to Chesnara’s estimate of Economic Value (EcV) of £48m. Both ratios are before £2.8m of transaction costs. The deal is to be debt funded, and is expected to complete in Q1 2022. It will increase the EcV leverage ratio from 6% to 15%, and lower group Solvency II ratio from 156% at FY20 to 142% (Chesnara’s H1 21 SII ratio was 153%). The majority of the £3bn portfolio is unit-linked pensions, mainly invested in equities. The book is open, employs 100 FTES, and will be closed to new business and moved to Chesnara’s outsourced model upon completion. All costs of these changes are reflected in the £39m Own Funds estimate. Paying over 100% of Own Funds after costs and increasing leverage, we see the rationale of the deal in a step up in cash generation, estimated at c.£5m per year on a steady state basis, against FY20 UK cash generation of £29m, and FY dividend costs of c.£34m. This will be supported by real world returns above the risk free, run-off of the risk-margin and future synergies, none of which are captured in Own Funds or EcV. We update our forecasts for the recent H1 results, making a small cut to solvency after the H1 decline and immaterial cuts to IFRS profit forecasts, but update only solvency forecasts for SLP, with a step-down in solvency guided. On unchanged dividend forecasts of 3% growth p.a., we roll forward our target price basis from FY21E to FY22E on an unchanged 6% target dividend yield, and this drives an increase from 370p to 385p. We think investors should take comfort from the increased cash generation from this deal, and note that Chesnara traded at a premium to the sector on a yield basis prior to 2019.