Accenture Capital Markets Blog

As Winston Churchill once said, “Never waste a good crisis.”

For asset managers, the COVID-19 pandemic has surely altered the path to business success. At the same time, there might be opportunities in areas like mergers and acquisitions (M&A) coming up. The economic hardships of COVID-19 make it more likely that banks and insurance companies would decide to unlock liquidity by pulling out of ownership stakes in asset managers. If this happens, the result could be an increase in firms acquiring another asset manager, a firm with complementary capabilities and/or a technology vendor.

Success with M&A is certainly not assured. Studies have shown that the failure rate for mergers and acquisitions can range from 70 to 90 percent.[1] There are many potential stumbling points, but in this blog I want to focus on one in particular: the point at which firms attempt to create a target operational structure through effective integration.

Why do a merger or acquisition at this time?

This wouldn’t be the first time that a crisis triggered opportunities for M&A. Accenture research has found that, for those willing to take the risk, an economic downturn can be an advantageous time to execute a merger or acquisition. Our recent paper “COVID-19: Rebalance for resilience with M&A” finds that, over the next three to seven years, firms across industries who leverage M&A as part of a holistic response to the COVID-19 crisis will be more likely to outperform those who do not. Historically, it found that organizations that have pursued M&A deals during a market downturn have realized a total shareholder return (TSR) that is 22 percent higher over three years than the S&P 500 sector average. During epidemic outbreaks, the TSR uplift increases to 30 percent.

Unsuccessful M&A deals are less likely a function of poor business logic than incomplete and ineffective post-merger integration of operations. For asset management firms, overcoming this challenge is a key to M&A success.

Five steps to create a winning structure through operational integration

The solution for acquirers looking to generate value from M&A lies in identifying the right target structure and then creating it through effective operational integration. Depending on the size of the target and the acquiring firm’s strategic objectives, the main choice is between full integration ─ where the target company’s business units and front, middle and back offices are fully combined with those of the acquirer – and partial integration, where the target company’s business lines form distinct business units.

Accenture has identified a set of five practical steps that asset managers need to focus on when creating the right structure and trying to realize cost synergies through effective operational integration.

  1. Perform rigorous operational due diligence

All acquirers should carry out thorough operational due diligence to understand what they are buying into and the challenges or opportunities they may be inheriting across technology and operations. Getting a clear view of the following elements is crucial:

  • Strategic partnerships: Understand the target firm’s landscape of strategic partners and custodians, and the services these firms are providing.
  • Technology and data infrastructure: Define the primary technologies and data platforms used within the target firm, whether vendor-supplied or proprietary. Identify areas of strength and potential challenges to integration.
  • Investment product support: Identify differences in the operating model for products and/or investment types, especially if they’re new to the acquiring firm. Consider asking auditors to review any products and assets that the acquirer is not familiar with.
  • Global model and markets: To map out the necessary support model, understand where the target firm operates, trades and domiciles its products.

Rigorous operational due diligence sets the stage for the design of the target operating model and supports the realization of cost synergies through well-informed and timely integration efforts.

  1. Set the product and distribution strategy

Key motivations for M&A often include expanding into new products and improving investment strategy capabilities. To seek these goals, the acquirer should assess and rationalize the target’s investment products and distribution channels.

  • Define product and distribution strategy: Work with sales and product development teams to understand the current and targeted investment product mix and strategies, including fees. Then determine the sales approach, client profiles and client relationship mandates – especially where clients overlap between the firms – and assess the associated risks.
  • Identify any outliers: Identify investment strategies or products that fall outside of the acquirer’s strategy. Decide on the approach to these products, whether it is to leave them out of the deal, onboard and rationalize or onboard and eventually divest.
  • Outline product rationalization strategy: Assess the product mix across both firms for opportunity, profitability, investment strategy, performance and cost. Each product will fall into one of three categories: remain, consolidate or liquidate.

As an example: In the case of the Franklin Templeton/Legg Mason merger, strengthening the distribution framework and footprint was cited as key to accelerating future growth.[2] Despite the firms’ operational structures remaining autonomous from one another, optimizing distribution is a key focus for growth and efficiencies.

  1. Design the target operating model and technology infrastructure

Designing the target operating model and technology infrastructure in the initial stages of the deal helps to inform the target state organizational structure and the implementation strategy.

  • Target operating model: Decide how to use the two firms’ operating models to position the merged organization for the future. Options include adopting the acquiring and/or target firm’s strategic partnerships, in-sourcing to one of the firms’ operating model infrastructures or a combination of the two.
  • Technology and data infrastructure: Determine how to leverage the existing technology ecosystem between the acquiring and target firms’ technology and data architectures.
  • Design considerations: The target state operating model should be designed to support the firm’s strategic objectives, including new investment products and asset types.

Today, asset managers should have an operating model that is flexible to adapt to changing industry requirements, and scalable to support organic and acquired growth. M&A presents opportunities not only to enhance these attributes, but also to acquire operational assets and design an operating model fit for the future.

  1. Define the organizational structure and culture

Defining the organizational structure and culture to support the operating model should be carried out in the early stages of the integration. The amount of change occurring within the acquiring firm’s operating model would influence its organizational structure and culture.

  • Organizational structure: The impact on the acquiring firm’s organizational structure can range from minimal (e.g. converting the target firm’s investment products to the acquiring firm’s infrastructure) to large (e.g. merging the two firms’ operating models). Key considerations include the talent profile and strategies needed to support the chosen model and future needs.
  • Culture: The evolution of the organizational culture would depend on the changes to the acquiring firm. If the acquiring firm remains structurally and strategically consistent, its culture would largely absorb that of the target firm. If the two firms form a more integrated model or a new firm, this would require the creation of a new culture.

Overall, the organizational structure should be designed to accelerate the firm’s growth, supported by the right culture and talent.

  1. Stand up an effective program

In our work with clients, we often see that planning and executing the integration process can be a top success factor for M&A deals. To facilitate an efficient execution, firms should focus on the following priority actions:

  • Recognize your experience level: Successful integration depends on the skills and resources you have – meaning it requires an honest self-assessment of internal capabilities.
  • Design an all-encompassing program: Integration programs should reach horizontally across both organizations and vertically top-down. Transparency and consistency are key to verify it’s translatable across all areas.
  • Encourage updates and direction from the top-down: Communication is critical, and ‘buy-in’ needs to be embedded at all levels.
  • Set an effective change management strategy: Change management is crucial, especially when both sides of the integration would experience people-related impacts and organizational changes.

Firms are under growing pressure to deliver on M&A integrations – and a longer or more costly integration can undermine much of the original business case for the deal. A realistic, disciplined and transparent program with top-down direction is critical to realizing operational and cost synergies.

The key to value from M&A

As our Capital Markets 2022 report highlights, asset management firms struggle with turning operational scale into profitability – yet this is key to realizing the cost synergies of M&A deals. With thoughtful and disciplined operational integration, firms can vastly increase the likelihood that their acquisitions generate value. Contact me for support during these volatile times.

[1] Source: Christensen, Clayton M., et al. “The big idea: The new M&A playbook.” Harvard Business Review 89.3 (2011): 48-57.
[2] Source: