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.
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.
Aberdeen offers Standard Life a quick route to the big boy’s table Laith KhalafJustin 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.
The analyst at the FTSE 100 firm said Standard Life could bring some stability to Aberdeen, which has seen 15 quarters of consecutive outflows, and which could now benefit from distribution through Standard Life’s pension and wrap platform.
“Aberdeen meanwhile offers Standard Life a quick route to the big boy’s table by almost doubling assets under management.”
The deal targets £200m of annual cost savings, which comes at a time when active managers are feeling the pinch when it comes to fund charges, thanks to the gauntlet laid down by the passive price war, Mr Khalaf said.
“Both companies will go some way to relieving some of that pressure on the bottom line. However that does unfortunately spell job losses for the combined group.”
We expect some attrition in the short term as consultants are usually reluctant to push funds from companies that are merging Peter LenardosThe deal, which is subject to shareholder approval, looks set to take place in the third quarter of this year.
Peter Lenardos, analyst at RBC Capital Markets, said the merger makes sense, partly because it has the potential to boost earnings when both companies have been hit by net outflows.
However, he said he expected a slump in assets under management in the immediate aftermath of the deal as advisers become reluctant to choose funds from companies that are merging due to likely dislocation among investment staff.
Matthew Harris, IFA and owner of Fife-based Dalbeath Financial Planning, said: “With passive funds taking an ever larger share, active fund managers need scale and a wide variety of fund types.”
While he said the merger appears to have the potential to deliver this, he warned that integration won't be easy.
“How do you decide who to keep, and where the fund managers should be based?” he said, adding the move will be “dreadful” for the jobs market in Edinburgh because both firms employ a lot of people and there will be a lot of duplication in jobs.
Alan Steel, director of West Lothian-based Alan Steel Asset Management, said the merger sounded like a “perfect fit” and suggested it would help the company compete against global players.
Lee Robertson, chief executive of the Investment Quorum, said consolidation in the asset management industry was becoming a clear trend, pointing to the Henderson and Janus merger deal announced last year.
“I am sure it will not be the last [merger], as these larger asset managers look to find scale, pool resources, and find savings by combining departments.”
While he warned there is the inevitable jockeying for positions which could lead to service levels falling, he said firms which get it right often emerge much stronger.
katherine.denham@ft.com
