Standard Life-Aberdeen merger linked to passive price war

Standard Life-Aberdeen merger linked to passive price war

The planned merger between Standard Life and Aberdeen Asset Management is thought to be prompted by the price war in the fund industry, as investment professionals suspect more deals are on the horizon.

According to today’s (6 March) announcement, Standard Life shareholders will own two thirds of the combined company and Aberdeen shareholders will own the remaining third.

The merger will create one of the biggest active managers in the world, overseeing a total of £660bn in assets.

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Various professionals in the financial services industry are broadly positive about the move, and many attribute the merger deal to increasing pressure on investment groups to bring down costs. 

Justin Urquhart Stewart, cofounder of Seven Investment Management, said consolidation is inevitable, particularly where mature houses have heaps of legacy products, costs and people. 

“This merger is a chance for the groups to create a leaner cleaner company which is fit for business in this new era. This is how dinosaurs can be recreated – if they can’t then they will go the way of the previous dinosaurs.”

Mr Urquhart Stewart suggested this deal would be positive for the Scottish financial services industry by making the sector scalable both domestically and internationally.

However, he questioned whether this move is the catalyst for some new leap in innovation, or just a defensive move by old companies extending their tired lives.

“This will be a good test of management skills to drive real benefit – history is not always encouraging.”

Keith Baird, financial services analyst at investment broker Cantor Fitzgerald, views the merger as a cost-driven deal given the threat from passive investing, pricing and regulation.

“The fit between the two businesses looks reasonably complementary but there will be a risk of revenue and staff attrition to offset savings on costs.”

Ben Yearsley, investment director at the Wealth Club, pointed to the potential overlap in some areas where costs could be removed.

Yet he also suggested some areas might cause concern, particularly when considering both fund groups are very process-driven.

“The question for me is will they allow both investment processes to coexist? If they can't coexist, how will they integrate the investment teams without losing what has made them so good over a long period?” 

Yet on the plus side, Mr Yearsley said Standard life's distribution in regions like India could fit nicely with Aberdeen's expertise, adding: “From an investor’s perspective, there is nothing to be concerned about today.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “This merger is a marriage of the old and the new, both in terms of the companies’ heritage and their main areas of strength.”

He said Aberdeen’s emerging markets focus dovetails well with Standard Life’s exposure to developed markets, but warned of the considerable areas of overlap between the two groups, particularly in multi-asset, fixed income and property funds.