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Brand is a burning issue in fund deal

Friends Ivory & Sime&#39s move to snap up the investment arm of Royal & Sun Alliance has come as no great surprise to an industry accustomed to mergers and acquisitions.

But the wave of indifference that greeted the news from IFAs and rival companies was unusual for a deal that FI&S was keen to point out will create a top 10 active fund manager in terms of assets under management.

One reason for this could be that FI&S had long been tipped as being one of the front runners to acquire the business and so any shock value had evaporated well in advance of last week.

But IFAs have adopted a more prosaic view and insist the deal would fail to inspire even the most excitable.

Bates Investment head of research James Dalby says: “It will not make a jot of difference to IFAs because when deals are just consolidation – which this looks to be – then nothing much changes. If this was a dominant firm taking over and imposing a particular fund management style across the board then there would be a significant fallout, which would have a far bigger impact on IFAs.”

The problem is, according to Bates, that the deal presents no obvious points of interest. With a price tag of £240m, R&SA Investments has gone for roughly what the market expected. Although there will be redundancies and fund consolidation, the deal suits both companies reasonably well in terms of fit.

Even so, many IFAs feel a great deal of effort will be required on the part of FI&S to make the acquisition reap the sort of rewards it is clearly seeking. They believe one of the biggest hurdles to overcome could be in the way that the merged company&#39s funds are marketed.

BestInvest deputy managing director Jason Hollands says: “There is an issue with brand. Once the deal is concluded, the funds will be distributed under the Isis banner. For years, R&SAI has been aware that being associated with an insurer is a hindrance in the fund management industry. Neither R&SAI or FI&S can currently claim to be a premium brand and arguably the former has more name awareness than that of their potential purchaser. A lot of work will need to be done over the coming months to establish the Isis brand.”

Hollands believes the deal also lacks depth in terms of distribution. If R&SAI had been purchased by a heavy-hitting US or European bank, then there could have been potential for extending its distribution into other, perhaps international, markets. But both firms are UK businesses and lack the global office networks which Hollands says can be a big help when covering stocks listed on other exchanges.

However, while the deal itself offers no particular areas of celebration or concern, there are suggestions that the R&SA group could now be left in the cold after selling what was widely regarded as the jewel in its crown.

It is no secret that several parts of the business have been up for sale for some time – most notably its life and pension arm – so, with the most attractive component now sold, will potential buyers lose interest?

An industry source says: “Taking into consideration all parts of the business, it was always the asset management arm that shone through, even though it struggled to make strides in the UK retail market because of the group&#39s baggage. But now it has gone, R&SA has been left with a lead balloon – its only option may be to break it up and look at securitisation.”

Another factor which could hinder the potential sale of the remaining parts of the business is the section of the deal which will see FI&S running R&SAI&#39s UK life and pension funds for 10 years.

R&SA says the agreement with FI&S does not “preclude” it from selling the life and pension arm but many believe potential buyers will be unlikely to accept this unusual arrangement.

Dalby says: “Any company interested in the life and pension arm will want to manage the funds but this deal does not seem to allow them to do that. It is all very messy and must have an impact on the sale of the business.”

It seems to be a battle that FI&S has won. The contract could scupper talks with potential buyers but RSA remains bullish, saying that by the end of the year it will have released capital – it needs £800m to bolster its general insurance business – “one way or the other”.

FI&S will now begin an immediate programme of streamlining which will result in redundancies and a rationalised fund range.

Chief executive Howard Carter says FI&S remains on the lookout for other acquisitions but IFAs believe they will need to be more impressive than the deal with R&SAI to create a business to worry the likes of Jupiter and Fidelity.


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