Reports from Monday suggest Legal & General might be on the verge of selling its Cofunds platform. The firm acquired the platform just two years ago and sources are suggesting private equity firms might be after the fund supermarket.
Legal & General’s Deal
Two years ago, the firm bought the Cofunds platform in a deal that valued the fund supermarket at £171 million. The deal was finalised in 2013, as the firm bought the ownership from Threadneedle, Jupiter, Prudential and Newhouse Capital Partners.
Legal & General had, prior to the deal, held a 25% stake in the platform, but increased it to a full ownership by buying the remaining shares. The firm paid around £131 million for the final batch of shares.
The reports are now suggesting the firm is moving on from its investment. According to New Model Adviser report, the firm has already appointed advisers to oversee a possible sale. Fenchurch Advisory Partners will be looking at the possible suitors and help the firm make the most of the deal.
After the firm acquired Cofunds, it was looking to provide the fund platform with a new phase of growth. Legal & General said at the time it has the right expertise in scale and distribution to strengthen the platform.
But Cofunds’ fortunes have provided to be mixed results. According to Investment Week’s report, the firm acknowledged earlier this year that it must “operationally leverage” the platform to boost profits. The company said, “In 2015, we need to operationally leverage Cofunds and increase fund flows to (Legal & General Investment Management) to generate a more meaningful profit contribution to the group and offset the managed decline in the contribution from mature savings products.”
Around 15% of Legal & General investment arm’s retail fund flows were generated by the platform. Furthermore, Cofunds saw its net assets increase by £7.8 billion to £71.9 billion in 2014. On the other hand, its net inflows fell to £5.4 billion last year.
Private Equity Firms Eyeing the Platform
Among the possible suitors are private equity firms and trade bidders. The deal would be a perfect pick for a private equity firm, with firms showing plenty of interest towards the industry in recent months.
A source familiar to the situation told New Model Adviser, “It is surprising L&G are looking to offload it, but in the right hands it could be very successful”. The source said that a main reason behind the recent troubles is the platform’s “unfocused institutional ownership structure”.
A private equity firm could be well suited to help the platform turn its fortunes. Private equity firms have outlined their interest in similar companies in the past, with platforms like Transact and 7IM attracting interest. Although the Transact interest didn’t bear fruit, it is likely Cofunds will receive similar offers during the bidding process.
Overall, the wealth and asset management sector has enjoyed a wave of merger and acquisition activity this year.
It remains to be seen whether this time private equity firms stay in the bidding process, or if Legal & General opt for a different exit option instead.