Two big British financial firms, Standard Life and Aberdeen Asset Management, are joining forces, in a $4.7 billion deal that reflects the rising pressure on money managers that try to beat the markets.
The deal would create a combined company with roughly 660 billion pounds of assets under administration at a time when investors are favoring low-cost index funds over portfolios that actively trade bonds and stocks. Actively focused firms like Aberdeen and Standard Life are facing increased competition from behemoths like the Vanguard Group and BlackRock that specialize in index funds.
It often comes down to fees. Firms like Vanguard offer ultralow expenses on funds that try to match stock and bond benchmarks. Active managers typically charge more, with the goal of trying to beat the index, although they do not always live up to the promise.
The merger of Aberdeen and Standard is the latest move in the industry’s search for greater scale and global reach. In October, Janus Capital Group and the Henderson Group, a large investment manager based in London, agreed to a deal that would create a company with about $320 billion of assets under management.
Standard Life and Aberdeen Asset Management said on Monday that they had agreed to an all-share deal to create Britain’s largest asset manager, worth about $13.5 billion based on their stock market value. The transaction, in which Aberdeen investors would exchange their holdings for shares in Standard Life, valued Aberdeen at £3.8 billion, or about $4.7 billion. Standard Life shareholders would own two-thirds of the combined company.
Aberdeen was founded in 1983 by a group of investors including Martin Gilbert, its chief executive, when they bought a £50 million investment trust. The company has aggressively expanded outside of Britain. It acquired the British and United States institutional businesses of Deutsche Asset Management in 2005 and Nationwide Financial Services in the United States beginning two years later.
The company has developed an expertise in emerging markets, but in recent years, investors have pulled back from that area. The company had £10.5 billion in net outflows in its fiscal first quarter, which ended in December.
Standard Life, which is based in Edinburgh, was founded in 1825 as a life insurance company and moved into dedicated asset management with the creation of Standard Life Investments in 1998. It has remade itself broadly as an investment company, buying asset managers and expanding internationally, while reducing the size of its insurance unit.
Its biggest business is Standard Life Investments, followed by its pensions and savings business in Britain. Those two lines accounted for 95 percent of its operating profit last year.
“The combination of our businesses will create a formidable player in the active asset management industry globally,” Keith Skeoch, the Standard Life chief executive, said in a news release. “We strongly believe that we can build on the strength of the existing Standard Life business by combining with Aberdeen to create one of the largest active investment managers in the world and deliver significant value for all of our stakeholders.”
The combined company would be based in Scotland and use branding from both Standard Life and Aberdeen, the companies said. Standard Life’s chairman, Gerry Grimstone, would serve as chairman of the combined company, while Simon Troughton, the Aberdeen chairman, would serve as deputy chairman. Mr. Skeoch and Mr. Gilbert would become co-chief executives of the combined company.
The transaction is subject to shareholder and regulatory approval. Goldman Sachs and the law firm Slaughter and May are advising Standard Life. JPMorgan and Credit Suisse and the law firms Freshfields Bruckhaus Deringer and Maclay Murray & Spens are advising Aberdeen.
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