Over the past 18 months, a flurry of mergers and acquisitions (M&A) has taken place in the asset management industry. During 2015 and 2016, there was a 400% increase in the number of deals in this space. This trend is not likely to slow down given the macro challenges the industry is facing, including regulatory pressures, cost pressures and a shift from active to passive, just to name a few.
Often when a leadership team wants to grow its business, an acquisition is an attractive strategic “lever” to pull. However, the large body of research from both academics and private institutions has demonstrated that M&A deals are not always the silver bullet firms had hoped for. In fact, a report by Accenture and the Economist Intelligence Unit has shown that approximately half of M&A transactions are not as successful as leaders expected.
For M&A to serve as a strategic lever, industry leaders should master three domains:
What is the new organization’s common goal?
After a deal closes, the new leadership team – a balance of “acquirers” and “targets” – should work together to define common goals and financial objectives for the new organization. This is imperative because M&A deals are, by nature, disruptive. Laying out a clear vision and setting expectations helps employees transition from business as usual to the new state.
What is the operating model?
Keep in mind that not all integration efforts are created equal. Depending on the size of the target and the acquiring firm’s strategic objective, various operating models could be appropriate. At a high level, the two most common are either full or partial integration.
- Full integration ─ target company’s business units combine with those of the acquirer and a new operating model, culture and product offering emerges. This method involves full front-, middle- and back-office integration and strong executive, operations and technology leadership to make it work.
- Partial integration ─ target company’s business lines form distinct business units. This model entails partial middle- and back-office integration and a clear, strong operating and marketing agreement among the business units.
Once the methodology is determined, several core activities should take place. The approach should be agreed upon and stakeholders should buy in and support it. Roles and responsibilities should be assigned. After all of this happens, the hard work of designing and executing the integration plan begins.
Who is responsible for success?
As with all strategic initiatives, leadership is a critical success factor. Defining a new strategic vision that lays out how the combined organization is better positioned for accelerated growth and value creation than each alone is one thing. But subsequently generating that value is a different thing. M&A deals are complex programs that require innovative thinking, integrity and building and maintaining relationships with strangers. Add to that quick decision making. This skill set demands a strong group of leaders from both ends to capture the value.
Keep in Mind….
Today, numerous challenges stand in the way of asset managers’ growth goals. To continue evolving, many firms might want to acquire capabilities rather than build them organically. From a pure management lens, acquisition bodes well for a leadership team. However, from a long-term strategic view, the firm needs to ensure that the potential of the acquired capabilities could be fully unlocked. Success in any M&A deal is not guaranteed. As such, savvy leaders would be wise to address the three critical domains required to help ensure success – vision, structure and leadership.