Potential Royal London and LV= merger: Complex and disruptive or powerful and modern?

This weekend rumours began to circulate that Royal London was pursuing a takeover of LV= in a deal that would create a "mutual champion" with nearly 10 million customers across the UK. 

In a market update on Monday morning (28 September) LV= responded to the rumours: "The Board of Liverpool Victoria Financial Services Limited ("LV=") notes the recent press speculation and confirms that as part of a previously announced Strategic Review it has been and remains in discussions with a number of parties regarding a potential transaction.

"Discussions are on-going and there can be no certainty that the discussions will result in any transaction being agreed or with whom."

Boring Money CEO Holly Mackay said the rumoured merger would likely be long and complicated: "What do you get when a friendly society and a mutual join forces against a backdrop of ‘build back better' and a renewed focus on fiduciary responsibility expanding to include non-financial elements too? There's a powerful opportunity to create something genuinely modern and powerful.

"That said, mergers always take twice as long and are twice as complicated as anyone imagines. It will be a long time before any consumers see any impact. And with most of us all working from home for the foreseeable future, the cultural implications of a merger - always a massive headache even with people able to meet, chat and connect in person - will be a huge project and not easy."

'Eyes on the treatment of employees'

Lang cat consulting director Mike Barrett said the most important aspect for this merger, if it were to take place, was how the companies treat their employees, especially given the job turmoil created by the coronavirus pandemic: "It's obviously already been a hugely unsettling year for everyone, and uncertainty about the future of their jobs is not going to help," he said.

"Whatever the combined organisation is hoping to achieve in terms of customer proposition and shareholder return can only be delivered if they look after their people."

Looking at it from the insurance side, Income Protection task Force co-chair Roy McLoughlin added: "There is historical evidence that insurers coming together can help bolster their propositions, so if these rumours are true then there may be a positive here.

"For example, when Aviva took over Friends Life and other providers in 2015, it made them stronger. In as much as we don't want to see the market shrink, if it works to improve the overall offering then I am supportive of that. If it also helps to improve the reach of income protection and bring it to its rightful place at the forefront of protection conversations, then that can only be a good thing." 

'Likely disruption'

Grosvenor Birch director and Chartered financial planner Lewis Birch said Royal London and LV= appeared to be a "good match", adding: "Nowadays businesses have to undertake acquisitions to stay at the top. We have done business with companies undertaking mergers before, the old Aegon/Cofunds [for example], which was a nightmare for a long period of time." 

After acquiring Cofunds in 2017, in May 2018 Aegon completed the migration of more than 400,000 customers and £37bn of assets from the Cofunds platform to a new, upgraded Aegon Retirement Choices platform. However, it suffered a number of difficulties with the technology switch along the way. 

Birch continued: "They should take their time to ensure minimal disruption, think about the clients and stakeholders first, which in turn helps the business reputation. Royal London seem to be extremely conscious of their impact on members, so I am confident they will balance it correctly."

IFS Wealth & Pensions founder and Chartered financial planner Ricky Chan echoed Birch's thoughts - he said the main issue with these types of big mergers was the period of disruption advisers and clients were likely to face. He added: "Hopefully there is the support given to any new legacy business that would be closed to new business - this could be LV's existing insurance or investment/pension business.

"Also, on a micro-level, some funds may no longer be commercially viable to remain open so I'd like to see Royal London merging these funds rather than keeping them open so clients aren't stuck with old funds dwindling resources and returns."

Meanwhile, Shore Financial Planning director and investment committee chair Ben Yearsley told PA he thought the merger was "bound to be complicated", pointing out mergers between life companies "always are".

"It's an interesting time to do a deal, but for mutuals to survive they probably need to get more scale. It's a similar trend to pure asset management companies where scale is seen as vital," he added. 

In the market

Royal London recently sold its adviser platform Ascentric after the deal was first announced in May. Later that month, it was revealed that Ascentric would remain separate to PruFund. M&G chief customer and distribution officer David Macmillan said Prudential's With Profits fund, which was £76.8bn at 31 March 2020 and is part of M&G, would remain a separate proposition to the Ascentric platform, confirming it is "not migrating anything to or from either party… they are complementary".

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• Topics
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• Royal London
• Holly Mackay
• Ben Yearsley
• Mike Barret
• Ricky Chan
• Barry O'Dwyer
• Lewis Birch
• LV=