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Standard Life, Aviva and the politics of merger deals

Beyond the Budget (and the subsequent U-turn), what has been grabbing the headlines over recent days has been the £11bn mega merger deal agreed between Standard Life and Aberdeen Asset Management.

And for good reason. The combined business will run over £660bn in assets, become the biggest active management group in the UK and the second largest in Europe. The superlatives are flying around like there is no tomorrow, with commentators describing the enlarged company as an asset management “powerhouse”. My personal favourite is fund “supergroup”, which to me says more of Abba and the Beatles than the staid world of asset management.

Comparisons have been made between this merger and the tie-up between Janus and Henderson. For me, there are also echoes of Aviva and Friends Life, traditional rivals that together achieve scale and reach that individually they could only dream of. The classic business equation of one plus one equals three, or more if you’re lucky.

While Aviva/Friends Life was clearly in a different field, the mega-deal of the life and pensions world may have some lessons for their Scottish counterparts.

A merger of these proportions creates an overflowing in-tray for both companies involved, not only on strategy but logistics and IT, as well of course, the ultimate brands and product ranges.

Clearly, the merger takes priority on a business level, but the FCA and the Government pay little heed to a company’s individual issues when effecting game-changing policy. That was the case on pension freedoms – the Government wanted freedom and choice and providers had to comply. The result, in Friends Life’s case, was it was not ready, and had to apologise to 1,300 customers in 2015 for its inability to carry out what the Government had promised.

In a similar vein, the FCA’s asset management study looms large over fund groups. At the same time as Standard Life and Aberdeen will be looking to cut costs (“cost synergies” in the polite vernacular), the regulator will also be bearing down on asset managers to cut costs of a different kind.

Mergers are not all bad. Yes there will be jitters and perhaps manager moves, but the Standard Life/Aberdeen combo may also provide opportunities for a more diverse investment landscape. If managers choose to jump from either side of the fence, those same managers could go on to launch interesting, high-performing boutique funds in place of the old guard they have just left. But the exec teams at both groups will also have to be mindful that regardless of their business priorities and company agenda, policymakers will no doubt have a different one.

Natalie Holt is editor of Money Marketing. Follow her on Twitter here

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