PA ANALYSIS: Cofunds deal a rare win all round

Added 11th August 2016

The sale of Cofunds is a rare example of an asset sale that is a win for all concerned.

PA ANALYSIS: Cofunds deal a rare win all round

While most takeovers and asset sales are publicly proclaimed to be good for all sides, the application of a small amount of scrutiny quickly identifies major downsides for at least one party. This seems notably harder to do than usual with the Cofunds sale.

Cofunds itself stands to benefit significantly from having an owner which has gone all-in on the platform market rather than being a reluctant, or at best, unenthusiastic participant.

With Aegon betting the house on investment platforms, Cofunds management and staff can feel pretty sure they will get the necessary backing to grow the business and make it a success over the long run. Crucial investment in the technology that the service is built upon is the most obvious and important way this will be manifested.

For its part, Aegon is getting a very well established investment platform that cements it as a dominant player in the space. Having such a strong market position brings with it significant medium and long term advantages, provided it does not overstep the line at which a monopoly is created of course.

For L&G there is a bit more of a question mark purely because of the price it has let Cofunds go at. Selling at £140m is some way south of the £175m implied value the business had in 2013 when Nigel Wilson and co bought an additional 75% of Cofunds to become its sole owner.

"While most takeovers and asset sales are publicly proclaimed to be good for all sides, the application of a small amount of scrutiny quickly identifies major downsides for at least one party"

However, bolstering the balance sheet to keep the Solvency II wolves from the door should not be underestimated as a benefit, while being able to draw a line under something that in hindsight was a strategic miss-step and increase the focus on other areas of the business can only be a good thing.

Managing director of Chelsea Financial Services Darius McDermott described the deal as ‘really good news.’  “I think, unfortunately, current owners L&G hadn't quite appreciated the level of investment required to bring Cofunds in line with other competitors,” he explained. “Aegon has a more comprehensive range of products and services, including investment trusts and FTSE 350 stocks, and is fully committed to continued enhancements and being a major player in this space. The deal brings to an end months of uncertainty and will result in a much better platform for our clients.” 

According to founder of the Lang Cat Mark Polson, the thousands of Cofunds clients and users should feel assured the change will work for them.

Now, Polson is open about the fact that he was involved in the deal in some capacity, but he makes some valid points.

“On balance I think this is a good thing. I can hear the naysayers coughing up a lung already, but none of that matters too much,” he said. “Haters gonna hate. The only thing that does matter is that Cofunds desperately needs investment in its tech infrastructure and – for reasons known only to itself – L&G hasn’t been willing to put that in. Aegon is willing, and that’s welcome news for 800,000 clients and 17,000 users in 6,000 firms on Cofunds.”

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.

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