Navigating the M&A Lifecycle: Keys to Success for Asset & Wealth Managers

Silas Proft, Andrew Elko

Over the last three years, the total number of global Asset and Wealth Management M&A transactions have increased significantly in volume and associated AUM.

In the near-term, we expect there will be a brief pause in activity caused by the added complexity in establishing valuations as inflation and rising interest rates will compel those on the acquisition path to reestablish a baseline. Alpha expects the market will open back up as soon as we get that first ‘unlocking’ transaction which we anticipate will take place in Q3. This will have the effect of providing a new valuation baseline and a return to robust transaction volumes in H2 2022 as pent-up demand releases. We at Alpha continue to see inorganic growth as a consistent discussion topic across our global Asset and Wealth Management client base as managers continue to face evolving regulatory constraints and increased pressure from investors to provide greater value through product growth, geographic expansions, and reduced costs. It is therefore no surprise that acquisitions are an appealing option to quickly address these issues. However, realizing transaction benefits is not always easy. For Managers contemplating future deals, we have provided some key considerations to help lead to a successful integration and long-term outcome.

  1. Organized and comprehensive Due Diligence sets the foundation for success.

Throughout the diligence period, focus must remain on identifying the key information required to deeply understand the Target across all functional areas. Standardized templates, detailed requests, and a well-structured analysis process (coupled with timely and comprehensive responses) are invaluable in evaluating the business and identifying any red flags that may exist. In addition, it is essential to have access to key management and targeted process owners (both business and operational) to discuss responses in detail and ask confirmatory questions in an open dialogue setting. The analysis from these sessions should be sufficient to make informed, realistic estimates around operating costs which are used as the foundation to apply synergies and growth assumptions. These are in turn reflected in the valuation model and used to influence negotiations ahead of signing.

  1. The earlier a holistic Integration Strategy can be defined, the better.

Integration planning should start with a review of the deal rationale and what the transaction is intended to achieve. This will inform the definition of an upfront Target Operating Model across all functional and business areas that delivers against this strategy. Completing this exercise ahead of signing allows for preliminary decisions to be based on the future state and provides some certainly on direction of travel for staff and clients. Certain areas to focus on include what the integrated product line looks like, which distribution channels will be leveraged, impacts on resource levels over time, which systems will continue to be used, what the oversight model looks like, and so forth. Taking this a step further, it is ideal to then develop a draft Integration Plan ahead of signing to define major milestones, sequencing, resources, and timelines, which help inform a more accurate estimate of the integration costs to insert into the valuation model with increased confidence. It is expected that the Integration Plan will evolve and change over time as more detailed planning occurs.

  1. Establish a strong governance structure and use it to overcommunicate.

Investing the effort up-front to create a well-structured governance model is crucial to generating accountability among stakeholders, a standardized path for escalation resolutions, and the ability to obtain quick decisions from program executives. When well executed, the model will ensure all functional areas are covered through workstreams and that the teams are working closely and aligned from the beginning, with appropriate opportunities for input from each area. Furthermore, associated governance forums should provide constant visibility for stakeholders at all levels into what is occurring across the Program, allowing for cross workstream dependencies to easily be identified. Workstream leads can trickle down key messages as required, and when coupled with meticulously crafted all-staff communications, a true sense of awareness will be created for everyone impacted by the transaction.

  1. Keep a careful eye on key personnel and overall resource levels.

One of the biggest challenges in any M&A integration is not having the right level of staffing (and associated relevant skillsets) to keep the integration plan on track. Personnel from the Target know the business the best and it is imperative to have retention mechanisms in place to secure their active participation through the integration, especially when they may ultimately become redundant. Equally important is to ensure that internal resources working on the transition have sufficient capacity or are fully dedicated to the effort to avoid activities falling into a waterfall pattern. While the aforementioned will help to maximize employee effectiveness, gaps inevitably will appear, and it is critical to identify and onboard additional staff or temporary resources as quickly as possible to achieve key milestone targets.

  1. Third-party providers should be reviewed and closely monitored.

M&A transactions offer the opportunity to rationalize the number of third-party providers. However, termination costs must be balanced with the requirements of each functional area to determine the best action and related timing. This requires dedicated resources to manage the overall analysis and address each contract. For providers that will continue in the future, especially those that require migrations or implementations, it is vital that they are aware of the overall integration strategy and key dependencies on their relevant milestones. Establishing an oversight model helps to ensure the provider has a detailed project plan in line with overall timelines and suitable escalation points.

  1. Approaching business wind-down as a forethought may reduce integration costs.

It is easy to get lost in the plethora of near-term integration milestones and neglect wind-down efforts, leading to long tails in closing out the integration. Establishing a clear plan early for cutover to business as usual, with the processes and technology required for support, can help compress overall timelines and reduce spend. In parallel, efforts can be undertaken to decommission facilities, infrastructure, and applications, as well as identify data requirements for records retention and transfer, validate and destroy data at the Target in-line with the overall decommission schedule. Taking the approach to move as quickly as possible to get rid of what isn’t needed, even if seems like the exercise can be done later, often pays dividends overall.

Asset and Wealth Managers that embrace the notion of ‘plan early, escalate often’ will be successful in M&A transactions. Maintaining flexibility in timelines where possible and more importantly ensuring communication lines are open, program governance is established, and a future state operating model is agreed to are all essential to long-term integration success.

Contact Us

If you would like to learn more about Alpha’s M&A practice and services, please contact us here.

About the Authors

Silas Proft

Silas is a Manager with Alpha North America, based in the Boston Office, where he is a member of the North America M&A Practice. Silas has experience working with global Asset and Wealth Management firms across the operating model with a particular focus on pre-deal due diligence, integration planning, post-deal integration execution, strategy, and operating model design work.

Andrew Elko

Andrew is a Director with Alpha North America, based in the New York Office, where he leads the North America M&A practice. He has extensive transaction experience within the Asset Management & Wealth sector, working on a number of engagements focused on market scans, strategic target assessments, valuations, due diligence, synergies analysis, target operating model design, integration planning and post-close integration support.