The mega-merger between Standard Life and Aberdeen Asset Management would create a global property portfolio with more than £40bn in assets under management and give Standard Life the potential to expand in Asia.
Aberdeen and Standard Life have a total of £580bn of assets under management, with £40.1bn in real estate − 6.9% of their total AUM.
The two companies said they pursued the merger because they have little overlap between their portfolios, which will help them build scale when combined.
Aberdeen’s property funds have a more significant footprint internationally, with one focused on European assets and one focusing on Asian listed property.
Of the six Standard Life Investment property funds, five are entirely UK-focused. The asset manager has a global REIT fund, but its only Asian exposure is in Japan, Hong Kong and Singapore.
| Standard Life Investments Property funds | Size (£m) |
| SLI UK Real Estate Fund | 2581.2 |
| Standard Life Property Life Fund | 300.9 |
| Standard Life Property Pension Fund | 1120 |
| Standard Life Investments Property Income Trust | 443 |
| Global Real Estate Fund | 424.5 |
| Global REIT Fund | 110.7 |
| Total | 4980.3 |
| Aberdeen Asset Management property funds | Size (£m) |
| Aberdeen European Property Share Fund | 66.5 |
| Aberdeen Global – Asian Property Share Fund | 46 |
| Aberdeen Life UK Property Fund | 28.1 |
| Aberdeen Property Share Fund | 332.6 |
| Aberdeen UK Property Fund | 2600 |
| Total | 3073.2 |
When the two companies started “serious talks” in January, Aberdeen had ended 2016 with £32.8bn in net outflows. Its property portfolio saw net flows of -£0.8 and its share price was 40% down from where it had been at its peak in April 2015.
The attractiveness of Aberdeen’s Asian portfolio is something of a reversal from last year, when the company wrote that investor sentiment toward Asia was one of the major causes of outflows, particularly in its equities business.
Martin Gilbert, chief executive of Aberdeen, and Keith Skeoch, chief executive of Standard Life, said on 6 March that they foresee a rebound in the developing markets. Their newly combined company would position itself to take advantage of that.
While Standard Life could absorb Aberdeen’s funds following the merger, a decision around that could be dependent on how much compatibility it sees in their portfolios.
In 2014, when Standard Life bought Ignis Asset Management, 11 of the 12 Ignis retail funds were merged with counterparts at Standard Life Investments. The one fund that was kept under original management was one that was “very different” to Standard Life Investments’ funds. A similar situation could be possible considering these differing portfolios.
Anasuya Iyer, an equity analyst at Jefferies, wrote in a note to investors on 6 March: “In our view, Standard Life’s strong distribution capabilities across UK, developed Europe and North America complements the emerging market bias at Aberdeen.”
Jefferies also estimated 11% growth in earnings per share for Standard Life shareholders through potential cost cutting, including merging the companies’ offices across Edinburgh and London.
Martin Gilbert, chief executive of Aberdeen, told BBC Radio 4 that the idea of 1,000 jobs being at risk from the consolidation was “way, way exaggerated”.
The two Scottish-based fund managers will have to consider the political and economic future of the country in terms of their long-term decision making and occupation following the merger.
Paul Cairney, professor of politics and public policy, University of Stirling said there is a “decent chance” people would vote for independence should they be given another opportunity.
He said: “In terms of businesses trying to assess risk, there is some prospect of Scotland remaining in the EU and there are lots of new cities touting for business in light of finance leaving London. Edinburgh could be the new financial centre or hub.”
Cairney added that while it was hard to avoid speculation that Standard Life could reiterate its intention in 2014 to move its operations to Newcastle in the event of an independence vote, it was important to consider that the company had also toyed with plans to move to England more than once.
Paul Curran, chairman of the Scottish Property Federation said that despite political uncertainty financial mergers could create opportunities for the country’s property industry.
“Edinburgh has got such a strong foothold and it creates opportunity with individuals from those organisations creating new funds – fund managers set up on their own all the time.
“Financial services in Edinburgh has weathered the storm post credit crunch and the city is still very strong in financial health.”
Will we see more mergers coming up?
We can expect more consolidation in the sector because active asset managers are looking to build scale and diversify, especially in response to pressure from the Financial Conduct Authority regarding the fees they charge. A report from the regulator in November found that a £20,000 investment in a passive FTSE all-share fund would earn 40% more over 20 years than a similar investment in an active fund partly because of higher fees. To compete with that, active managers would have to cut costs and consolidate their businesses.
This merger continues a trend that Henderson and Janus Capital followed last year when they merged. Statements from Aberdeen and Standard Life echoed Dick Well, chief executive of Janus Capital, who highlighted how their portfolio in the US and Japan would complement Henderson’s footprint in the UK and Europe. French asset manager Amundi similarly bought Pioneer Investments from UniCredit last year, giving it €222bn of new assets and exposure to the Italian market.
Issues for landlords in relation to major corporate mergers by a tenant, by Mark Heighton, partner, CMS Cameron McKenna
The two key issues are the covenant strength of the tenant post-merger and whether the lease is to be assigned.
The extent to which the landlord can have any control will depend upon the particular circumstances. In many cases leases will be assigned to the merged entity and there will be the usual application for consent. Where this is the case, a landlord will have whatever controls are set out in the lease in terms of the covenant strength of the assignee.
Even if there is to be no assignment, a landlord may receive a request to release or substitute an existing guarantor as a result of a proposed corporate restructuring resulting from the merger. Unless the lease specifically caters for substitution or release, the landlord will be in a strong position in terms of saying yes or no to any such application.
The more difficult situation for a landlord is where the lease is not being assigned to the merged entity but remaining with the existing tenant with the merged entity occupying under a “sharing with occupation” provision in the lease. The covenant strength of the tenant may be less. There will be little the landlord can do to prevent this happening or to require an assignment of the lease. It is highly unlikely that a lease will contain “change of control” provisions, which allow a landlord to forfeit in the event of a change of shareholder control/merger.
If the premises are surplus, then presumably the tenant will be looking to assign or underlet to a third party and, again, the landlord will be able to rely on the controls set out in the lease in relation to approving any such applications. Surplus premises may also give a landlord an opportunity to negotiate a surrender, take the premises back and relet them on more favourable terms.
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