Standard Life Aberdeen Plc is getting out of the insurance industry.
The Edinburgh-based company agreed to sell the unit to Phoenix Group Holdings for £3.2 billion ($4.5 billion). The transaction will free up cash for Standard Life Aberdeen to pursue M&A deals as part of its ambition to become a $1 trillion money manager at a time when that part of the businesses is struggling to stem outflows.
“We felt that Phoenix was the more natural owner,” Gilbert said in a Bloomberg Television interview. “It’s a capital-heavy business and we’re more capital light.”
Asset managers across the globe are being battered by a move toward cheaper index-tracking funds, driving consolidation in the industry, including the combination last year of Standard Life Plc and Aberdeen Asset Management Plc. Co-Chief Executive Officer Martin Gilbert has said the firm wants to expand in the US and Asia.
Under the terms of the deal, Standard Life Aberdeen will receive £2.3 billion in cash and a stake of almost 20 per cent in Phoenix. It will retain its UK retail platforms and advice business. For its part, Phoenix said it may raise about £950 million through a rights offer to help finance the transaction.
Standard Life Aberdeen shares rose as much as 4.8 per cent in London. Phoenix climbed as much as 7.6 per cent.
Standard Life Aberdeen’s growth ambitions were dealt a blow last week when Lloyds Banking Group Plc, the money manager’s biggest customer, said it would pull a mandate to oversee £109 billion for the bank. That’s almost a fifth of the fund manager’s total assets. As it seeks to grow, Standard Life Aberdeen has also looked at buying the US business of ETF Securities, though it faces competition from other bidders, Bloomberg reported last week.
“Standard Life has become more of an investment company,” said Laith Khalaf, an analyst at Hargreaves Lansdown Plc. The withdrawal of Lloyds’s assets highlighted problems that may come up when asset managers compete “for the same pool of business as potential customers. There is therefore some logic in focusing on one rather than the other.”
For Phoenix, the deal turns the closed-life fund consolidator into one of the biggest insurance firms in the UK The deal will enhance the company’s cash flows and allow it to pay an enhanced dividend. Phoenix estimates the deal will create net synergies of £720 million, including recurring annual pretax cost savings of 50 million pounds.
Standard Life Aberdeen also reported on Friday that its clients withdrew a net £31 billion in 2017, following net outflows of about £37 billion the previous year. While outflows from the asset-management unit slowed, institutional investors accelerated redemptions.
Standard Life Aberdeen also announced that Chairman Gerry Grimstone will step down next year.
Bloomberg News first reported details of the deal, and Phoenix’s plan to raise about £1 billion of capital to help pay for it, on Thursday.