Why Aberdeen Asset Management Plc’s Shares Popped

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares in Aberdeen Asset Management (LSE: ADN) soared over 13% in early trade, following the announcement that it has acquired Scottish Widows Investment Partnership Group and its private equity and infrastructure fund management businesses from Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US).

So what: Its purchase of the asset management division is worth £550m-£560m, with an initial consideration payable in 131.8 million new ordinary Aberdeen shares — about 9.9% of its issued share capital — and a further deferred consideration of up to £100 million in cash. The sale does not include Scottish Widows, Lloyds’ life, pensions and investment business.

Now what: Alongside the acquisition, Aberdeen also announced that it was entering into a long-term strategic asset management relationship with Lloyds Banking, in which the former will manage assets on behalf of the latter, and is “expected to result in a stronger asset management partner”.

Aberdeen management also stated that “there will be a performance-related five year earn-out payment of up to £100 million dependent on growth delivered by the strategic relationship with Lloyds in the Investment Solutions business”.

Aberdeen’s strengths in the area across the likes of fixed income, real estate, active and quantitative equities and investment solutions will complement those already in place at Scottish Widows, and the total newly acquired business will inject annualised revenues of approximately £234m into the company.

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Aberdeen Asset Management shareholders will be very pleased with this morning's news -- investors who were eyeing up a stake in the company but hadn't got around to it, less so. Still, our team of top analysts have highlighted a share that they believe has yet to fulfill its growth potential, and produced a special report in which we evaluate its finances, risks and growth prospects going forward. 

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> Sam does not own shares in either company mentioned.