A rocky year after the £11bn handshake
One year on from the merger of Standard Life and Aberdeen, the jury is still out as to whether it adds up, reports Lucy Burton
It has been a rocky year since Standard Life and Aberdeen sealed their ambitious £11bn merger, but joint chief executives Keith Skeoch and Martin Gilbert are still able to crack a joke. “Humour, in this industry, is very important,” says Skeoch in response to suggestions that the asset manager’s twinheaded structure could be one of its problems.
“At least we’re the same height. That didn’t work at Janus Henderson,” laughs Gilbert in a jibe at a rival that scrapped its own split-leadership structure. “There’s a photo that we like, and one of them is clearly on a box.”
If only Standard Life Aberdeen’s financial performance was as sharp as its badinage. Since the merger its stock market value has sunk by a quarter, it has shed billions of pounds in assets and lost a prized £109bn Lloyds mandate. Its half-year results this week revealed that £16.6bn left the business.
“It’s a case study in what can go wrong if you merge asset managers,” says one former staff member, laughing when asked if he’s ever regretted leaving. “You don’t regret leaving a car crash. It’s a disaster. Where is the growth coming from? Gilbert says he wants [the firm] to be bigger still. That would go down like a cup of cold sick.”
Gilbert and Skeoch tell a very different tale. The leaders argue that creating a £655bn goliath protected both sides of the deal from what they knew would be an unpleasant few years. Independence for Standard Life and Aberdeen would be even tougher, they argue.
“We foresaw that this was going to happen, hence the reason we decided to combine and be in a position to … deal with what’s going to be a tough few years ahead of us,” says Gilbert.
“The market environment has worsened significantly since we started discussing the merger in January 2017. We like to think we’re ahead of the game [by merging]. Only time will tell if we are.”
Former government economist Skeoch agrees. He argues the trends that prompted the merger accelerated since he and Gilbert began discussing a deal in an Edinburgh restaurant.
Those are, he says, the rise in individuals becoming responsible for their own financial future, lack of trust in financial services, the impact of passive investing on fees and the low-growth, low-interest rate environment.
“We’ve both been around long enough to have no illusions,” the 61-year-old said. “We knew it was going to be tough.”
Insiders claim that stitching together two contrasting cultures is proving challenging. Many at Standard Life and Aberdeen were open to the idea of a deal at the beginning. “Nobody thought, oh, that’s a disaster,” recalls one source. But now sceptics are easy to find. “It’s too early to say the deal hasn’t been a success, or it hasn’t worked – it was quite a brave deal. But the culture of the two is incredibly different,” says an executive who recently left the business.
“At Aberdeen things stood or fell on a team agreement. The way money was managed at
Standard Life was very much based on an eat-what-youkill decision; individuals were paid on their personal success. So you’ve got a real clash between two very different mindsets. The more you get to see how different the other side is, the more you start to question if and how it’s going to work.”
Sources say the company has hired marketing consultants, while senior executives have been inviting employees out for coffee to take the temperature of the shop floor.
“I’ve had a couple of conversations but have come back and not really been sure what it was for,” says one money manager. The feeling that Standard Life, the bigger of the two, didn’t need to do this deal in the first place also hasn’t helped gel the two cultures. “Aberdeen would have been in a worst position, Standard Life would have been in a better position,” says Numis Securities analyst David Mccann. “[However], going back to the rationale of the merger, it’s fair to say asset management is having a tough time and they were very much in the crossfire. Coming together to create something that’s bigger to compete with those trends does still stack up.” Rae Maile, a former fund manager who now works as an analyst for Cenkos Securities, agrees that the reasons to bulk up in the first place still make sense and it would be “harsh” to judge the deal this early on. “If you’re looking to save for the next 30 years and draw it down for 30 years after that, you need to be sure the company you’ve entrusted your savings in is going to be around for that time,” he said.
“That plays to scale. You could get offered much higher rates of return from a wham-bam-thank-you-ma’am hedge fund in a grubby Mayfair office with great performance statistics, but in two years’ time they might [close].”
After selling its 200-year-old insurance business to Phoenix in a £3.2bn deal this year, it is hoping to expand in asset management. But it is yet to reverse the trend. While Gilbert admits that £16.6bn is the size of some asset management firms, he says it needs to be put in the context of how big the business is. “In percentage terms that’s not the worst in our industry,” he says. Looking forward, all eyes are on who will replace outgoing chairman Gerry Grimstone. The implications could be huge, with many market sources expecting his replacement to scrap the much criticised dual-leadership structure and parachute in an external chief. “We couldn’t have done this deal without that structure,” says Gilbert. “We’ll continue doing it as long as the board wants us too. It’s not our decision. We’re servants of the board, or whatever the correct term is.”
‘Aberdeen stood or fell on a team agreement. Standard Life was an eat-whatyou-kill decision’