Our US correspondent looks at the flurry of big merger and acquisition deals and how to handle the post-M&A integration blues.

National Registered Investment Advisor (RIA) M&A deals set another record last quarter and the end is nowhere in sight. But what happens when the negotiations are completed, the papers are signed and the honeymoon is over?

“Doing a deal is hard, integration is harder,” said Brandon Kawal, partner at Advisor Growth Strategies. Three-quarters of advisors who have undergone a post-M&A integration were not expecting the process to unfold the way it did, and a third would do things differently, estimated Mike Camp, head of client solutions for 55ip, who oversees the firm’s transition services team.

What are the biggest pain points?
“The single most difficult thing is to ask people is to change their behavior,” said Tom Orecchio, CEO of Modera Wealth Management, which has acquired four RIAs in the past two years. “Human capital is one of the biggest challenges when you’re integrating,” agreed Brett Bernstein, CEO of XML Financial Group, which has acquired two firms in the past 18 months. “People don’t like change.”

By all accounts, staffers do want open, ongoing, and frank communication during a post-M&A transition. 

Integration only works when…
“Integration only works when communication is constant, honest and transparent,” said Pradeep Jayaraman, president, BluespringWealth Partners. “One of our guiding principles is radical transparency. If the strategic fit or future role for a team isn’t clear, we don’t move forward until it is.”

“People on the other side need to feel empowered,” Bernstein agreed. “You have to effectively communicate what you’re striving for.” Indeed, determining “what work will be controlled by the seller’s office versus adopting the processes of the buyer is probably the number one risk that could create friction during the integration process,” according to industry veteran John Furey, Kawal’s partner at Advisor Growth Strategies.

Integrating firms need to also pay attention to potential workforce flight risk. “G2 advisors and executives who feel underappreciated are at risk of leaving,” Camp said. “Founders and acquiring firms should make sure key staffers have an equity stake.” This article looks at how to bridge the growing gap between founders and G2 advisors and executives.

Biggest post-deal headaches
After human resource issues, custodial integration, investment strategy alignment and tech integrations are “paramount” post-deal concerns, said Camp. “It’s critical to separate needs from wants,” Camp explained. “Determine what’s essential versus what’s helpful, but you don’t need on day one and make sure you understand the depth and capability of your teams.”

After Modera completed its deals, healthcare benefits proved to be the biggest post-deal concern for employees. “Healthcare was by far the single most important issue for staff,” Orecchio said. “It blew us away. We didn’t see it coming.”

Servicing client relationships can be “another area of friction” after a merger or acquisition is completed, according to Kawal and Furey. Many large firms have professionalized their approach to client pricing, Kawal noted, which can mean “significant adjustments to having oversight on how client relationships are priced,” as well as a different “service delivery expectation” post-merger.

The biggest post-deal headaches, according to Jayaraman, “come from a lack of clarity upfront. If you’re not aligning on key elements like organization structure post deal, compensation and strategy before close, you’re setting the stage for friction later.”

Post-deal prep advice
So, what should firms preparing to integrate be doing?

Communicate and formalize comprehensive plans, overall strategy, technology platforms and service models upfront “to keep everyone aligned and protect enterprise value,” said Jayaraman. And don’t wait until the deal closes, he added. “Start during diligence. Build three, six and nine-month roadmaps before the deal closes so everyone knows what comes next.”

It will take 12 months or more to see the desired work-life results, so merging firms need to “apply the right level of diligence and expectation setting for accessing growth channels, service utilization and tech integration,” said Kawal.

Try to streamline business operations before merging or acquiring, have project management teams in place and set up safeguards to prevent client attrition, Camp said. During integration, the acquiring firm needs to demonstrate how tech and other processes work together, supplemented by “a lot of training,” Camp added.

Modera sends a “triage team” to acquired firms to identify key integration issues, Orecchio said. “We want to make sure as many arms of the deal as possible, including CRM systems, tech platforms, leadership and reporting lines are in alignment,” he said. “Doing triage in advance helps mitigate post-transition issues.”

Above all, have patience. “You can do as much planning as you want,” Bernstein said, “but you don’t know what curve balls will be thrown at you.”