Scottish Widows sold off in £560m deal

January 2014 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

The reformation of the Lloyds Banking Group Plc continued apace in November as the group announced it had agreed to sell off the Scottish Widows Investment Partnership (SWIP) to fund manager Aberdeen Asset Management in a deal worth £560m.

The sale of the investment partnership, however, does not include Scottish Widows, the group’s life, pensions and investment business. According to Lloyds, Scottish Widows is ‘core’ to the future of the wider banking group. The purchase of SWIP will ultimately result in Aberdeen surpassing Schroders Plc to become the biggest listed fund management group in Europe. Aberdeen currently manages around £200bn worth of funds and will take control of another £136bn worth once the acquisition of Edinburgh based SWIP has been completed. Both companies expect the deal to close in the first quarter of 2014.

Under the terms of the deal Lloyds, Britain’s biggest mortgage lender, will also receive a 9.9 percent stake in Aberdeen. In order to help finance this, Aberdeen will be issuing 132 million new shares to Lloyds. Aberdeen will also begin to manage assets on behalf of the bank, as well take over Scottish Widows’ private equity and infrastructure fund management businesses. Depending on how those various ventures perform, Lloyds will receive a further £100m in cash over the next five years. “The sale and strategic relationship are expected to result in a stronger asset management partner for the group and its customers, combining Aberdeen and SWIP’s strengths across fixed income, real estate, active and quantitative equities, investment solutions and alternatives,” said Lloyds in a statement announcing the sale.

The sale of SWIP comes following a six month auction process which saw Aberdeen fight off competition for the group from a number of rival bidders, including Australian investment bank Macquarie, to secure a deal. Lloyds, which is still 33 percent owned by the UK government following a £37bn bailout package during the height of the financial crisis, is continuing to sell off a number of its non-core assets in an attempt to strengthen its balance sheet and refocus its attentions on lending to British households and businesses.

“This transaction is significant for the long-term prospects of Aberdeen in a number of ways. It strengthens our investment capabilities and adds new distribution channels; the acquisition of SWIP adds scale to our business across a range of asset classes; and it also introduces a strategic relationship with Lloyds Banking Group,” Martin Gilbert, chief executive of Aberdeen Asset Management said in a separate statement. “We are confident that this transaction will deliver considerable additional value to our expanded client base and this will therefore benefit our shareholders. I am delighted to welcome Lloyds as a major shareholder in the Aberdeen group and we look forward to working with them to deliver value through this new strategic relationship.”

The deal to purchase SWIP is Aberdeen’s largest ever deal and its third acquisition of 2013. Since the onset of the financial crisis the company has specialised in completing acquisitions from indebted banks in both the UK and Europe. Indeed, in 2010 the group purchased part of the Royal Bank of Scotland Group Plc’s fund management business for around £84.7m and in 2008 Aberdeen bought a part of Credit Suisse Group AG’s funds operation for approximately £250m.

Earlier in 2013 Mr Gilbert attempted to distance Aberdeen from a rumoured purchase of SWIP, noting that any move for SWIP would be “highly unlikely”. According to Aberdeen the deal for SWIP only became a possibility once Lloyds agreed to include its solutions business in the sale. The division covers multi-asset investing, asset allocation and private wealth management. “It was the solutions business that made it attractive,” said Mr Gilbert. “We were of the view it was absolutely vital it was included. We wouldn’t have done the deal without that bit.”

Scottish Widows can trace its roots back to the early 1800s when the group was set up by a number of Edinburgh businessmen as a fund to care for the widows and families of soldiers killed in the Napoleonic Wars. Lloyds acquired the business in 2000 for around £7bn.

Richard Summerfield