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The big deal

13 March 2017

Orchestrating a merger with Standard Life to create the UK’s biggest asset manager is an uncharacteristically defensive move by Aberdeen CEO Martin Gilbert, says Alastair O’Dell, but it is the right decision for the business

Read more: Aberdeen Martin Gilbert Standard Life

For many months Aberdeen Asset Management has faced the same awkward question of how it will reverse its recent slump. What strategy could co-founder, CEO and famed dealmaker Martin Gilbert come up with to turn things around?

We found out on 4 March, when Aberdeen was rushed into revealing its strategy when news broke of it being deep in merger discussions with Scotland’s biggest asset manager Standard Life. The £11bn ($13.5bn) all-share merger will entail Aberdeen shareholders receiving 33.3% and Standard Life 66.7% of the combined group, for which Gilbert and Standard Life CEO Keith Skeoch will be co-CEOs.

Aberdeen has had torrid time over the past couple of years, finding itself on the wrong side of some powerful industry trends. It had been haemorrhaging assets, losing £100bn in outflows over 15 consecutive quarters, and its share price fell precipitously between April 2015 and February 2016, from a peak above 500p to a low barely above 220p, before heading to 270p on the eve of the merger announcement.

The long-term trend vexing all active managers is the steady drift to passive management and the associated pressure feeding through into active fees, which could still have much further to run. "I wish I knew the answer to that – then we could plan much more efficiently," says Gilbert. "My instinct is that it will get tougher in the big developed markets. In emerging markets we are not seeing as much fee pressure. It’s going to get tougher."

The second issue for Aberdeen was the cyclical shift to the resurgent US economy, where it is weak, at the expense of the long-term 'rise of Asia’ story, where it is particularly strong. The problem is not with its performance – it perhaps does not match its glory days of the 2000s but is certainly respectable – but more that sentiment left its core markets and competitors had narrowed its edge.

"I do not think it will be the end, sadly," says Gilbert, anticipating another quarter of outflows. "We have just got to manage the business, and there are opportunities."

M&A experiences

Since co-founding the firm in 1983, Gilbert has made more than a dozen acquisitions including some during difficult times. Perhaps the most notable was in the wake of the split-cap miss-selling scandal in the early 2000s when it emerged from an existential threat to purchase the underperforming old Deutsche Asset Management (DeAM) business. It was a hugely successful move, against the odds achieving high levels of investor retention and giving Aberdeen back its "fighting weight", as it was described in the cover story of Global Investor back in January 2006.

There has been a long string of deals since (including Credit Suisse and RBS businesses as well as Scottish Widows) that led to it becoming the second largest Scottish asset manager, behind Standard Life. It bought largely unloved business and consolidated their funds into Aberdeen, leaving Gilbert undisputedly in the hot-seat of a firm unified by a strong company ethos.

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