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Thursday, July 18, 2019

The $6-Billion Question About M&A

Reported by InvestmentWires Staff, 

Lack of effective post-merger integration is costing the asset management industry between $6 billion and $8 billion a year, a new study from Casey Quirk shows.

Jeffrey B. Stakel
Deloitte Consulting LLP
Principal, Casey Quirk practice
In a white paper entitled "More Perfect Unions: Integrating to Add Value in Asset Management M&A," principals at Casey Quirk provided a look at some of the sources of duplicate costs hindering integration efforts, as well as several common characteristics between successful integration programs.

The researchers found significant discrepancies in profitability between firms that tried to preserve separate identities post-M&A, which the study refers to as "non-integrated firms," and firms that moved to a single identity across branding and different key functions, or "integrated firms."

One key difference between non-integrated and integrated firms is in organizational leadership. Although companies tend to move to a co-leadership structure post-M&A, perhaps to retain the legacy culture, reducing redundancies in leadership can free up as much as 2.4 percent of company revenue.

Jeff Stakel, principal at Casey Quirk and primary co-author of the paper, tells MFWire, "It seems that integrated firms had found a sweet spot, and they donít deviate too far from that number." In contrast, non-integrated firms have a wider dispersion and higher numbers of executives.

Successful attempts to integrate leadership after M&A tend to consolidate leadership structures and employ incentive systems. "Whenever incentive structures are explicitly and purposefully designed for post-integration milestones and objections, thereís more movement towards desired behavior, and more willingness to let go of legacy beliefs and structures," says Stakel.

The study, the first of its kind from Casey Quirk, comes at a pivotal time in the asset management industry.

According to Stakel, "The industry hasn't historically had to focus as much on cost management because of the growth tailwinds that existed. Those tailwinds are starting to die down."

Although the strategy consultant doesnít have plans to continue this research in the immediate future, they may revisit the topic depending on how M&A and integration progress in the asset management industry. 

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