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Abrdn banks on £1.5bn ‘no brainer’ acquisition of Interactive Investor

A single word is etched into a glass window in front of Edinburgh’s headquarters for the company, formerly known as Standard Life Aberdeen: Abrdn.

When the 197-year-old company decided to reinvent itself by dropping vocals in 2021, the initiative was met with widespread scorn. But according to CEO Stephen Bird, this was a provocative plan to modernize a company that has struggled to find a foothold nearly five years after a dull merger.

“We fully expected to get it,” Bird, who has been in the post since September 2020, told the Financial Times. “Good brands are noticed. Big brands start a conversation. “

However, reviving the performance of one of Britain’s biggest asset managers will take more than losing letters. Bird’s decision in December to buy the retail investment platform Interactive Investor for £ 1.49 billion. in cash is his biggest bet to date. The transaction is expected to be completed in the second quarter of 2022 and is still to be voted through by Abrdn’s shareholders.

Abrdn’s management believes that Interactive Investor, the UK’s second largest fund supermarket with almost DKK 55 billion. pounds in assets under administration, is the key to building a third leg in a lucrative segment that will secure the future of the struggling manager.

Bird and Sir Douglas Flint, Abrdn’s chairman, envision creating an investment group that can serve a wider pool of clients throughout their financial lives, instead of continuing to focus on its well-established asset management and institutional firms.

“The II agreement is absolutely central to the survival of the CEO and chairman,” said one analyst. “They are burning through a huge amount of capital…[when] what is already there is subscale. They have to demonstrate that they need these three separate business areas, and I am not convinced that is the case. ”

After Standard Life and Aberdeen Asset Management merged in 2017, their total market value was more than £ 11bn. Today it is 5.3 billion. Valuable holdings in two joint ventures in India, which Abrdn is gradually selling down, are currently valued at around £ 1.4bn. A stake in Phoenix, the UK insurer and Abrdn’s largest customer, is worth an estimated £ 900m. Abrdn announced on Thursday that they would also reduce its Phoenix stake from 14.4 to 10.4 percent.

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Abrdn, which manages 532 billion. pounds, has suffered net outflow every year since 2016. Lloyds Banking Group in 2018 moved a mandate to manage 109 billion. pounds for the bank’s Scottish Widows insurance business, then the asset manager’s largest customer, due to objections to the merger.

The merger created duplication of work and a confusing corporate structure, which was exacerbated by subsequent acquisitions.

Former co-chiefs Martin Gilbert and Keith Skeoch have now left leadership roles, as have many senior executives and some star executives, while former cash cow funds have fallen flat.

Gilbert, co-founder and CEO of Aberdeen from 1983 to 2019 and one of the architects behind the 2017 deal, acknowledged that it “has not gone as well as I hoped it would”.

“I think people underestimate the technological side [of mergers] across geographies and platforms, ”he said. “The front office is pretty easy, fund managers are easy to integrate, but the technology is tough and time consuming.”

The Abrdn office in Edinburgh
Abrdn has suffered a net outflow every year since 2016 © Jonne Roriz / Bloomberg

Retail is one of the hottest segments of the investment market as workplace pension schemes become less generous and traditional executives are sucked into a price war to compete with passive giants like BlackRock and Vanguard.

Richard Wilson, CEO of Interactive Investors, who has vowed to stay on after the termination of the deal, said the fact that the platform will function as a stand-alone entity reduces the risk of failure. “All the cutting edge risk in terms of cultural fusion and system fusion, it’s just not part of the mix,” he said.

The two companies have promised that Interactive Investor will still offer its clients a full range of funds and will not favor Abrdn’s offer over competitors.

But critics say the price tag for Interactive Investor is hefty for a company where synergies are unclear and opportunities to cross-sell products are limited.

“We do not really understand the II agreement. Are they trying to make the company a wealth manager? Will it work?” asked a top 10 investor in Abrdn. “The acquisition is quite expensive compared to what it is. The markets do not believe in the goals they have set. ”

Gilbert, who remains a shareholder, is more positive. “I’m more of a value player, I’m not sure I would have been brave enough to buy [Interactive Investor] because of its valuation, but I think it’s a good trade and an engine for growth. ”

Abrdn sees an opportunity to sell its asset management services – such as financial advice and property planning – to Interactive Investor’s pool of 400,000 clients.

“We must earn the right to be on every platform, including one we own,” Flint said. “The benefit is the feedback loop you get about which investment themes are very attractive.”

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Bird also defended the deal price. Buying Interactive Investor instead of letting it list was a “no brainer,” he said. “If we had let it go to listing and then made a bid for it, we would have had to pay a premium of 30 to 35 percent over the listed price.”

Bird said he would look at making other acquisitions as “additional purchases,” but nothing on the same scale.

The company took a majority stake in property logistics manager Tritax in 2020.

Bird said: “We will be able to give capital back… One way will be through a progressive dividend policy, but we are also open to other ways of doing it.”

Since arriving at Abrdn, Bird – which previously ran Citigroup’s consumer banking business and Asia-Pacific business but has no background in fund management – has cut the company’s dividends and sold or closed a number of secondary businesses in the Nordic countries and Indonesia.

The company reported a 77.2 percent increase in adjusted profit before tax in the first half of 2021 to $ 113 million. GBP 498 million compared to a deficit. GBP in the same period the year before.

“You would never expect us to have solved the market value problem in 12 months, but you would expect us to take the actions that set the company up for sustainable growth,” he said.

Flint first came up with the idea of ​​Bird joining Abrdn over pints of Scottish beer and fish and chips at a pub in Edinburgh in February 2020. The two had first encountered each other while working in Asia when Bird was still on Citi, and Flint was chairman of HSBC.

It surprised many to pick up a CEO who did not have a background in wealth management. But Bird says it’s time to transform Abrdn from a fund manager into a one-stop-shop for all investor needs.

“There are cynics who are colored in wool wealth management, and they are like this: We only look at you as an asset manager. If we only looked at ourselves [that way]we would not go one way into the future, ”he said.

Additional reporting by Harriet Agnew

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