The best mergers are not merely conceived as simple financial transactions. They are done in the spirit of advancement and cooperation. By combining and sharing equity, operations and resources, firms can grow faster and be more profitable than they could separately.
But merging is a process, and those who want to bring their firms together need to respect it and treat it with care.
Mergers unfold in three phases: the preparation phase, the execution phase and the collaboration/integration phase. In my experience, teams often try to rush into the execution phase when they find someone interested in merging, and they fail to give the preparation phase the proper respect it deserves, sometimes skipping over it entirely.
This faux pas can doom the process from the start and increase the chance it fails. Well before firms begin to execute the mechanics of a merger and integrate their teams, they need to devote a significant amount of discovery time to determine whether their philosophies and approach to managing clients, assets and people are aligned.
Discovery
When you’re considering a merger partner, there are some basic questions to consider: Do you like and respect the leaders? Are they trustworthy, credible, authentic and morally acceptable? How do they treat employees?
The answers will help you determine whether a cultural fit exists. Any oversight during the discovery process could wreak havoc and kill the transaction.
For that reason, you should dig deep into the details of all the businesses involved. You should fully evaluate each partner’s goals and the inner workings of each entity—including the similarities and differences of all business lines, as well as their functions and processes—and consider their financial strengths and weaknesses. Once you’ve taken these steps, you should objectively analyze the benefits and drawbacks of merging.
Every successful firm has a set of core offerings that distinguish it from its competitors, whether it is expansive planning services or a unique investment approach. Likewise, most firms also have gaps in their offerings, capabilities and capacity. So those who pursue mergers should have as their goal to create one compelling and sustainable firm.
Pathfinder
When you embark on the merger path, it is prudent to have a well-crafted plan to communicate the ways that management will change. Your teams will want to know how they fit in. Who is reporting to whom? Will they still have a place in the new entity that emerges? When employees hear about merger talks and lack details, they worry and might even become unproductive.
It is common to have overlap in functions when combining two RIAs—including human resources, accounting, finance, portfolio management, operations, technology, legal and compliance. However, keep in mind that a larger, growing firm can actually produce more opportunities for some employees.