M&A Integration Matters More in Turbulent Markets

Dealmaking Is Relatively Easy Compared To Making Deals Work Long Term – Especially When Clients Are Much More Anxious About Markets

Even with the clouds of economic uncertainty and market volatility overhead, there’s little doubt that continued consolidation in the RIA space through M&A transactions is a trend that’s here to stay.

But while M&A between RIAs receives a great deal of attention when first announced, the reality is that many of these transactions fail to complete.  Or worse yet, they crash and burn following completion because the post-deal integration didn’t work as planned.

Wrong way to end the deal!

Without question, post-merger integration is one of the single biggest challenges that face RIA owners who are thinking of selling their businesses.  RIA leaders who sell their firms only to see new ownership lose client relationships due to mismatched solutions, poor service or other factors harm their legacies and professional relationships.

In addition, they fail to see full financial value for their businesses, as earn-out provisions are invariably part of the deal compensation for any RIA seller.

Two Levels of Deal Analysis

So if we can agree that the real work for an RIA deal is in the integration process, and the stakes are high for all parties involved if the process isn’t effective, where do we go from there?

Let’s start with creating a core checklist of mission-critical criteria that should be developed and baked into the M&A deal process by both parties, well before the definitive agreement is inked.

The checklist itself should be guided by recognition that integration potential should be assessed on two levels:  First, sellers should ask whether the “hard” attributes of the buyers – capabilities, talent base, client base – meet their requirements.

The detail devils can wreck your deal

And second, sellers need to evaluate where things stand on the “soft” attributes, especially the cultural fit.

This might sound easy to do, but the devil is very much in the details.

Harder Than it Looks

Sure, driving scalability is one of the top considerations for RIA deals, and for sellers as well as buyers.  “If my client-facing team had access to a more well-resourced organization, just think of what we could accomplish!”

If only it were so simple.  First, sellers consider the question of areas of specialization.  Put more simply, do the buyers do the same type of client work we do?  And if not, how are they going to bridge the gap between our respective areas of focus?

Here’s a specific example:  The idea of combining retail wealth management and corporate retirement plan firms isn’t new.  But one of the key ingredients that can make or break the success of deals between RIAs with such different capabilities is having senior individuals from the buyer’s side who have direct experience in the seller’s core business focus.

Making sure those individuals exist, and that they will be dedicated towards serving as a bridge between the organizations to fully capture the potential between the deal parties once the merger is finalized is central to a successful integration process.

Client Transitions

Can the buyer guide clients?

Another major example of “hard” attributes includes client account transition teams – This means confirming well ahead of time that there is the right mix of personalities and talent from both firms to very actively guide clients of the selling firm to the combined entity.

Beyond the people, consider the logistics.  Is there a clear and detailed action plan for moving client relationships under the new owners, getting client consent for transitions if needed and doing so with multiple positive communications and engagement touchpoints that drive greater confidence and trust?

And of course, sellers must make certain there is a pre-existing fit when it comes to key industry partners, especially custodians and, if applicable, broker-dealers.  If the buyers don’t share these same relationships, there must be a clear plan on their part for how to address this issue from day one.

Towards the Softer Side…

While hard attributes decide how well the physical pieces of the puzzle fit together, cultural compatibility adds up to far bigger consequences in RIA deals.  Without a healthy alignment on values and service philosophy, the merged firms are guaranteed to encounter far greater integration challenges.

Some key questions to ask from the seller’s perspective during deal discussions include the following:

– What are the core values of the buyer, how do they live up to them and are they aligned with mine?  It is also a good idea to ask to meet or speak with other advisors – both longer-tenured and those new to the firm – to confirm what you have been told about the culture.

Will my clients be served properly?

– How much local autonomy will I have, if any, and what are the key areas of control I want to try to maintain?

– What is the approach to client service and is it aligned with mine? If different, are my clients going to be receiving a better experience and/or enhanced capabilities or is it a change for the sake of change?

The low-hanging fruit is gone.

– Are our investment management philosophies compatible? How will my clients feel about a shift, and over what time period will the adoption need to occur?

Integration Rising in Importance

There’s an argument to be made that M&A deals were just plain easier during the past bull market decade that we’ve enjoyed as a nation.  Even if RIA buyers and sellers weren’t the best strategic or cultural fit, economic and market conditions rewarded the pursuit of scale for its own sake.

Jeremy Holly,
Chief Development & Integration Officer, SageView Advisory Group

But while the RIA deal market remains strong and the forces for consolidation remain compelling, clients in an age of surging market volatility and economic uncertainty will be more closely scrutinizing service, support and performance.

In this environment, RIA buyers that can successfully partner with sellers to drive a truly seamless post-deal integration experience will create exponentially greater value for all.

Jeremy Holly is the Chief Development and Integration Officer at SageView Advisory Group.


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