Future vague for Bright Grey and Scottish Provident
Lucy Quinton
Royal London's decision to buy Scottish Provident has raised eyebrows in the industry over the future of the two firms, as Royal London already has its own protection arm, Bright Grey.
Industry commentators believe that there is no space for both protection companies under the Royal London brand because they have similar product propositions. Experts added that while both are good companies, it makes little strategic sense for one owner to run them both in competition with the other.
Dale Tranter, research product developer at Sesame, commented: "As Royal London has already paid good money for an option to buy Scottish Provident, I assume that it is the brand that interests it the most."
Tranter also predicted that there would be a management buyout with private equity offerings for the current management in the next six months.
However, Royal London remained resolute that it would run the two businesses alongside each other, with both Bright Grey and Scottish Provident pressing forward with their respective plans for the coming year.
Alan Savery, protection specialist at Abbey for Intermediaries, said that it was business as usual for the two firms, and revealed that Scottish Provident was looking to expand its protection range in the latter stages of this year with the launch of a new income protection product.
Alasdair Buchanan, group head of communications at Royal London, said the two companies did not intend to work together, and added that the plan was for the two businesses to run separately but under the one umbrella.
Both Bright Grey and Scottish Provident have had success in the industry in terms of market share and market propositions. The firms' business plans have been approved for 2008, with the aim to develop through initiatives such as Bright Grey's recent launch of business protection. However, market speculation suggests that running two companies that provide such similar products will not be sustainable in the long term.
Kelvin Lillywhite, financial consultant at Best Advice Financial Planning, explained: "One of the major factors when companies are considering purchasing others operating in the same space are synergies. Cost savings are made from realigning the two companies together, so that economies of scale produce superior profits. I cannot see why Royal London would be looking to do this at a later date when the merger has been completed."
"They may not want to damage either brand by declaring that one or the other will go, or a new one created," an industry source said.
Some commentators believe that the two-brand strategy is simply spin to protect ongoing business.
