Collapse of takeover talks leaves Cofunds in ‘serious mess’

The collapse of takeover talks with AJ Bell has left Cofunds in a “serious mess”, say industry sources.

Last month Money Marketing revealed AJ Bell will not acquire Cofunds after the firm failed to reach a deal with the platform’s parent company, Legal & General.

The two businesses had been in talks over a possible acquisition but decided not to press ahead after a four-week exclusivity period ended without agreement being reached.

Experts say if L&G is unable to find another buyer it faces the stark choice between running the platform down or funding an expensive reinvestment programme.

L&G purchased the remaining 75 per cent of Cofunds it did not already own for £131m in March 2013. The insurer took the initial 25 per cent stake in the platform in 2005.

In July, Money Marketing revealed L&G’s decision to sell Cofunds had been sparked by a move to switch the platform to a different technology provider, Bravura.

Cofunds was considering its options ahead of the contract with current provider IFDS ending in 2017. It is understood Bravura’s new Sonata system had been selected to replace IFDS, but the costs associated with the switch, expected to run to tens of millions of pounds, prompted L&G to start the sale process.

Wealth management firm Novia chief executive Bill Vasilieff says: “One option is to carve up the business into retail and institutional divisions. L&G has a good chance of selling the institutional division but they are in a mess because they have to replatform, which will cost a huge amount of money.

“I expect they would still like to sell the retail business if they could find a buyer.” One industry source says: “AJ Bell was one of the best fits to buy the business, but I still didn’t see why it made sense for them as it would have been such a stressful distraction.

“L&G’s options are to try and find another buyer, run it down or spin it off. It is going to become increasingly difficult to run a profitable business because Cofunds’ profit margins are already low.”

One platform boss adds: “This looks like a serious mess. Cofunds has ancient technology and its  finances could take a turn for the worse when the sunset clause hits next April.

“L&G could either run it down, which means writing off the value of what they paid for it, or spend some serious money to try and make it relevant to the market again.”

The Lang Cat principal Mark Polson says: “The only thing that’s certain is Cofunds needs to move its core infrastructure to a modern platform.

“The biggest platform naturally sets the tone for the market, so it’s important for customers and advisers the right result happens, whatever that is.”

Cofunds, L&G and AJ Bell declined to comment.