The writing was on the wall for Ignis

With an estimated value of £400m on 12.5x earnings, will Ignis prove to be a bargain buy for Standard Life?

The writing was on the wall for Ignis

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While Scottish Widows has offloaded its asset management arm to Aberdeeen, its Edinburgh-based life office cousin looks set to go the other way and boost Standard Life Investments through the purchase of Ignis in a deal said to be worth £400m.

Details are thin at this point and advance speculation about the deal was limited but the strength of Standard Life’s balance sheet is well-documented. The business has a long track record of growth acquisition (as well as organically) through its interests in IFA distribution and its intentions to maximise coverage via its fund platforms, wealth management business and rapidly expanding multi-asset division through Bambos Hambi’s MyFolio range.

Geographical overlap

Ben Cohen, analyst at Canaccord Genuity, says the increased scale (taking Standard Life’s global AUM to more than £300bn) would result in a clear cost saving, as administration and operating systems came together and streamlining their infrastructure, most likely building on Standard Life’s foundation.

He says the geographical overlap was one common sense reason for their taking an initial interest.

Cohen explains that if the deal completed for £400m it might trade at 12.5x historical earnings, which would give Standard Life a big book of assets at a decent multiple.

"But [if it goes ahead] Standard Life will be buying from cash. I think the earnings from buying Ignis will be accretive to the bolt-on new group. The acquisition does suggest that the weighting is shifting towards the asset management part of the business."

As the traditional UK pensions world was rocked last week by the Budget, perhaps this deal (which would have been under discussion for some time) showed exceptional foresight by Standard Life, whose annuity book looks rather less reliable these days and therefore buying another asset manager, one with a skilled and credible fixed income franchise, might have been seen as a nice safe purchase.

Wellian Investment Solutions’ investment director Chris Mayo feels the appeal must be the closed life book, failing to see Ignis as a heavyweight retail asset manager since it shifted its focus in 2011.

He says there existed synergy across both groups’ strong property and fixed income desks with a core strength in Ignis’ credit and rates teams but that SLI is far superior in equities.

Transformation underway

Ignis' Absolute Return Government Bond Fund has delivered exceptional numbers (returning 19.71% to date) and enjoyed a stellar launch with £2.75bn assets gathered since its launch three years ago.

When Chris Samuel took over Ignis at CEO in 2009 he set about a multi-faceted business transformation that arguably is still underway.

Jonathan Polin had gone, followed by a number of high-profile figures in marketing and sales and the joint venture model was gradually laid to rest. Ignis seemed focused on ensuring its core fund range met the needs of its institutional client base. Retail was no longer of importance and arguably, it was a good job, as Ignis failed to compete in many of the key asset classes (or in a chicken-and-egg situation, was its lacklustre performance and inability to gain ratings behind the new anti-retail approach?).

For those who remain at Ignis, perhaps driving an hour down the road may not be such a bad thing, giving them renewed impetus on a stronger bed that shares its interests.

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