Abrdn confirms talks over potential acquisition of Interactive Investor - but analysts not totally convinced

Investment giant Abrdn has confirmed that it is in talks regarding a potential acquisition of online investment service Interactive Investor.

The Scottish organisation, formerly known as Standard Life Aberdeen, said it is in discussions with private equity firm J.C. Flowers & Co, Interactive Investor’s owner, and was commenting after media speculation. It had been reported that a transaction worth about £1.5 billion was being negotiated – and could be announced "in the next few weeks".

Abrdn added: "There can be no certainty that these discussions will result in a transaction and a further announcement by the company will be made as and when appropriate.”

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Abrdn is eyeing Interactive Investor, which has assets under administration of about £55 billion, and 400,000-plus customers. Picture: contributed.

A deal would expand FTSE 100 firm Abrdn's direct-to-consumer business, and comes on the back of a boom in demand on DIY investing platforms since the pandemic, with other platforms such as Hargreaves Lansdown benefiting from the Reddit-fuelled surge in stock-buying.

However, the potential deal is not being viewed entirely positive by analysts – with David McCann, James Hamilton, and Kim Bergoe of Numis saying they have “mixed feelings” about it.

“We want to like this deal as, ignoring valuation/our concerns, we consider that it represents a sensible strategic step, by pivoting the group towards a growth part of the industry and one where we see lots of structural attractions,” they commented.

"We think this is a better way of investing shareholder money than on another mid-size asset-management acquisition, likely driven solely by cost-synergy potential, in an industry under pressure.

"However, we think our reservations are not immaterial. In the short term, for prudence and until we are convinced otherwise, we consider this deal a way of turning £1.5bn of shareholder capital into £1.2bn of value (20 per cent haircut), reflecting our reservations/risks of dissynergies.”

As a result, they have cut their Abrn target price to 387p from 401p – but stressed that their recommendation on the firm “very much remains a buy”.

Abrdn, whose current branding was revealed in April, is led by Stephen Bird, who was formally appointed chief executive in September last year.

Firepower

Additionally, the firm said earlier this month that interim fee-based revenue was up 7 per cent on a year earlier with adjusted operating profit 52 per cent higher at £160 million. They marked the highest rates of growth since the 2017 merger of Standard Life and Aberdeen Asset Management, while assets under management and administration came in at £532bn.

J.C. Flowers & Co has since 2016 owned a majority stake in Interactive Investor. The latter says it is the UK's top flat-fee investment investment platform, currently boasting assets under administration approaching £55bn, more than 400,000 customers, and in excess of a million users.

It saw its foundations laid in 1995, floated on the stock market in 2000, and was bought by Australian financial services group AMP the following year.

The current Interactive Investor is a private limited company incorporated in 2003, and since then it has inked deals such as acquiring Alliance Trust Savings in June 2019, a move it said united the two largest flat-fee investment platforms, for example.

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