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Merging two unhappy companies is a recipe for disaster

23 March 2019

9:00 AM

23 March 2019

9:00 AM

It never works to take two unhappy companies and blend them into a bigger pile of misery. That’s the way it looks at the investment giant Standard Life Aberdeen, known to some as ‘Staberdeen’, where Aberdeen Asset Management founder Martin Gilbert seems to have just lost a power struggle with his former co-chief executive Keith Skeoch from the Standard Life side. And that’s certainly the way in Frankfurt, where Deutsche Bank and Commerzbank are being shoved together by pressure to create what German finance minister Olaf Scholz foresees as a national champion that would be the second largest lender in the eurozone (after BNP Paribas of France) and impregnable to foreign takeover.

This monster marriage was first mentioned here as a possibility in late 2016, when Deutsche was in legal trouble in the US over dealings in mortgage-backed securities that eventually led to a $7 billion settlement and Commerzbank, having been bailed out after its own rescue of Dresdner Bank, was also going through a painful restructuring. Unions opposed the idea and senior executives on both sides never sounded keen. Wisely so: a perpetual theme of this column has been that bigness in banking is not a virtue in its own right but rather the reverse; complexity of risk and the sheer number of things that can go wrong are a formula for perpetual trouble. Better to shrink, stay separate, back fresh talent and keep markets open to disruptors. Shareholders are rarely wrong to beware of defensive mergers.

Optimism continued

I invited you to suggest smaller companies that are ‘potential world-beaters’ for the next layer of stocks in our UK Optimist Fund portfolio — and your wide-ranging responses gave rise to one big question. What are we really good at these days?

We certainly have strengths in bioscience, where your picks included Angle (blood analysis technology to identify cancer cells), Avacta (artificial proteins that stimulate auto-immune systems), BioVentrix (devices to treat heart failure), and ReNeuron (stem cell research). We’re a leader in financial technology, in which the venture capital fund Augmentum Fintech looks promising. Then there’s electronic engineering: you proposed Zytronic in touchscreens, DiscoverIE in electronic components and Ilika in the fashionable field of battery technology. Related to that, the mining royalties group Anglo Pacific offers a stake in vanadium, a metal much in demand for next-generation batteries.


What else? After Brexit, farmers will need to be more productive — and Carr’s, which sells a range of agricultural products and services, could benefit. PowerHouse, which converts plastic waste to energy, will help our portfolio look greener — while we take more controversial bets on IGas and Egdon Resources which control onshore gas resources but are held back by anti-fracking protest: as the UK’s energy gap looms wider, could that be about to change?

There’s a lucky 13 names to light up the Optimist portfolio, following last week’s first selection for reassuring solidity. I’ll be tracking how our fund performs in the months ahead, and meanwhile I’m also looking forward to discovering a galaxy of unlisted, earlier stage potential world-beaters among the entries for our Economic Disruptor of the Year Awards (see spectator.co.uk/disruptor). With so much entrepreneurial zest, you could almost forget we’re in the midst of a political crisis.

Fintech champion

More evidence that we’re good at fintech comes in the form of the £33 billion sale of Worldpay, a payments processing platform that was spun out of RBS in 2010 for just £2 billion. The buyer is Fidelity National of Florida, and the valuation reflects global growth in demand for digital payments as cash declines. The back story is that Worldpay was a ramshackle affair when it was first acquired from RBS by the private equity firms Bain and Advent, but was transformed by the hard-driving manager they appointed, Philip Jansen — who has moved on to become chief executive of British Telecom.

Jansen reaped a personal fortune in Worldpay’s 2015 flotation, and a second reported multimillion payout, digital or other-wise, when it was bought by Vantiv of the US in 2017. But he’s touchy: challenged in a Daily Mail interview over the scale of his reward from the Vantiv deal, he ‘exploded with rage’. Long-suffering BT customers hoping for a sympathetic response to their broadband problems may not find Jansen’s abrasive style to their liking and will kick off when they find out how much he’s being paid this time — but shareholders will gladly make him even richer if he delivers value for them the way he did at Worldpay.

Cheer up, kids

Optimism against the tide being my theme for the month, I have a message for the cohort I habitually address as ‘whingeing millennials’. I know you think my generation has blighted your future with Brexit, spoiled your job prospects, pushed home ownership beyond reach, blown your inheritance and stolen your pension; you and your younger siblings who bunked off school to march last week also blame us for wrecking the planet. So you may not welcome my advice — but I offer it anyway, inspired by attendance at my Oxford college gaudy.

Here was a hall full of middle-class white men in their mid-sixties, so uniformly grey or bald that the only one with a full head of dark hair offered to have it pulled to prove it was real. Hardly a cross-section then — but the range of stories, including those of absent friends, was extraordinary: of fortunes made and lost, of breakdowns and comebacks, of early burn-outs, late developers and the physicist who retrained as a clown. It reminded me that the future almost never turns out as we expect, but that fate is first and foremost in our individual hands. So (as I may have said before) grab life by the throat, kids, and relish the rollercoaster ride.


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