The merger process is fraught with pitfalls that can thwart deals and provide valuable lessons to those involved.
Andrew Dunbar, a director and senior financial adviser at APT Wealth, has learnt the importance of getting the cultural alignment right after completing five “bolt-on” style acquisitions or mergers over the past seven years.
“Don’t underestimate how difficult it can be to bring two potentially different operating models and business philosophies together, especially if the principal is staying,” he tells Professional Planner.
“No matter how attractive the financial outcome, don’t do anything that can jeopardise your culture. If you sense the cultural alignment is not quite right, move on to the next deal.”
Dunbar believes it’s crucial to dedicate sufficient resources to the process to ensure everyone gets the support they need.
“Whatever resources you think you need, you’ll likely need double,” he says. “You’ll want to throw plenty of staff at it to ensure the cultural and process integration is optimised.”
Go for growth
Merchant Wealth Partners partner David Haintz believes growth should not just be a goal of the acquisition.
“It is a necessity,” he says. “In the competitive employment environment, you’re going to struggle to attract and retain good people unless you can provide opportunities for their personal and career development.
“That’s tough to do in a business that isn’t growing. There is nothing wrong with a lifestyle practice, but it will come with consequences such as glass ceilings and staff turnover.”
Haintz’ firm, which he started in 1989, was one of 14 firms that merged simultaneously to create Shadforth in 2008. Shadforth was taken over by IOOF in 2014. Over the past few years, Merchant has taken significant but non-controlling minority positions in entrepreneurial firms to help them grow.
Given this experience, Haintz believes it’s vital to have clarity on the mission, vision and values (MVV) surrounding a deal. The MVV encompasses what all the parties want to achieve out of the merger or acquisition and why, as well as their moral compass as they move along the process. It must be clear on the benefits for all parties and stakeholders.
“Life and business can be full of ups and downs,” Haintz says.
“Clarity on a combined MVV will get merged entities through the tough times, focused on their ‘north star’, why they are doing what they are doing and what they will not compromise on.
“As merged firms go through the ‘forming, storming, norming and performing’, the MVV will give meaning to the ‘why’ of the deal.”
Have a plan in place
Dunbar says having a transition plan is essential in any merger or acquisition. “Make the plan clear for all involved and set milestones and timeframes. Stay on track, make changes as agreed and stick to it through a weekly meeting. It requires more time and staff than you think,” he says.
“You cannot overcommunicate in the first 180 days of the merger.”
Dunbar says practices can minimise disruption by stressing the enhanced services and expertise clients will get from the merger. “Then implement changes to their portfolios and service delivery slowly and smoothly. This will help the clients feel at ease.”
Dunbar adds there must be clarity on whether the principal is staying or transitioning out, and over what period.
“There will be a lot of work involved, no matter the size of the transaction, so ensure you have the bandwidth to manage it,” he says.
“Look for the hidden benefits other than just the revenue/EBIT [earnings before interest and taxes] uplift. For example, are you adding quality people to the corporate IQ, gaining other services and expertise or extending professional networks?”
Haintz says there are many M&A models in professional services and wealth management and not all suited for any situation.
“Some work, some have flaws – if it doesn’t make logical sense, don’t do it,” Haintz says.
“In business and in life, one needs to ‘kiss a lot of frogs’. The parties that you walk away from for the right reasons are as important as those you merge with or acquire.”
Rising Tide Financial director Matt Hale has learned a lot about how to deal with staff buying and selling equity in his firm over the past six years.
“Having the right people buy in will benefit everyone,” he says. “Don’t sell equity to ‘just anyone’.
“Also, be clear with your plans for the business and ensure the buyers are clear about what is important to them. It’s important to provide flexibility with valuations and funding mechanisms. You don’t want to miss out on great equity holders because you are too rigid.
“Have a clear dividend policy and robust shareholders’ or buy-sell agreements. Ensure you continue to update them as your experiences evolve. Be fair on the way out. You don’t want to burn bridges.”
