Fund Operator: In M&A activity, from a high-level business perspective, where do technology platform and operations synergies rank?

Brian Cobb: It is impossible to do M&A activity without the heavy reliance on or involvement of technology.

This integration allows key teams, such as operations and client services, to tackle the associated business challenges.

We use a philosophy of best in breed solutions. While we like to consider the whole integrated ecosystem of products, we tend to look at which system or platform is the best for a specific business process or set of processes.

"It is impossible to do M&A activity without the heavy reliance on or involvement of technology."

We then work on the integration of these technologies. Technology and operations are critical in any M&A activity. It’s practically impossible to execute an M&A without prioritizing these elements.

Michael Aldrich: It is important to remain flexible around any decisions that may impact the internal or external client experience, since this is a collaborative decision.

Cybersecurity is a very important element in a transaction where there isn’t much leeway. Safeguarding our clients is paramount to the success of the transaction and to the expectations of our clients.

"Cybersecurity is a very important element in a transaction"

Fund Operator: For how long can a newly-merged firm run on a separate platform before a common system is rolled out?

Michael: We have done about a dozen transactions over the last 15 years and it does depend on the outcome that you are looking to achieve from a transaction.

For certain transactions, we have done a full system and historical data conversion implementation within a finite period of time. For others, we have remained on separate platforms but have done so intentionally.

"Many times, our inorganic growth through M&A activity is about finding another organization that has an arrow that your quiver is missing"

This is important because in this business, it is not always about a big fish absorbing or gobbling up a small fish. Many times, our inorganic growth through M&A activity is about finding another organization that has an arrow that your quiver is missing.

The thought of just operationally converting to make things simpler isn’t always the best answer when the new firm may offer a new system, capability or business process that enhances the client experience for the larger organization.

When you can find this situation, it can lead to great client outcomes and no client loss.

Although operationally inefficient, there are ways to plan for this in advance so that you can continue to scale, knowing that inorganic growth can result in this.

Brian: It is part science, part art. No matter what, it is important that you finish the integration.

I have seen scenarios where there has been an acquisition that starts and lingers, but never concludes. You need to figure out the date of when the integration will be completed.

"No matter what, it is important that you finish the integration."

Once the legal entity has formed and we are merged, we move their data and applications into our environment so that they are running on our servers and infrastructure.

We convert all of the new colleagues onto our phones, laptops, desktops, etc. From the beginning, we consolidate onto our infrastructure so we don’t have to worry about vulnerabilities that may have existed.

The next step is to move up the stack with the integration process, including data, applications, and so on.

If you are acquiring a firm that has a capability that you don’t have, then it is about figuring out how it fits into the rest of the ecosystem.

If you have two systems performing the same function, this adds complexity, which requires additional oversight and administration.

Integration streamlines staff and technology requirements and removes risk from the environment. The key objective is to get it done.

Fund Operator: Can you describe the structure of operational oversight on new workflows and solutions?

Michael: Of course, there is no one solution. We get better each time, but it is a huge challenge.  I see it at a very high level as an exercise in pure change management and, more specifically, change management in two speeds.

"We voluntarily go through an internal audit practice"

One is very fast, which is the non-negotiable operational and oversight controls on day one after the deal is signed.

The more moderate speed of change management are the tactics that are needed to be put into place over the course of the following year.

We voluntarily go through an internal audit practice, which is very valuable to our institutional client base. This involves a number of testing and exams of controls.

Within a year of this exam, we are effectively normalizing everything with a defined timeline and are a stock one, type two firm and hold ourselves out to this level of expectation.

We have a certain amount of time to get both of us there together so that it becomes a joint exercise and try to make this as collaborative a process as possible.

Brian: From a technology standpoint, it depends on the platform and what it is doing. Similar to the operational controls, the technology controls all have to be in place.

There are core technology controls around access management. If it is a Tier 1 system, then it has to be factored into our business continuity and disaster recovery process, which includes a production operational capability and disaster capability.

"All of the technology controls and safeguards that exist in our standards have to be applied to the new platform"

We then do an annual test on all of these elements, which has to be integrated into this process.

All of the technology controls and safeguards that exist in our standards have to be applied to the new platform as it is brought into the environment.

If it is something that aligns with what we already did and we have good expertise around the platform, then we have internal experts at our disposal.

But if the acquisition is bringing in a new type of platform for a business capability that we don’t already have, then the hope is that the firm that we are acquiring will be bringing subject matter experts to support it.

Fund Operator: Once the firms have merged technologically, is there a period of rightsizing that takes place and what does that look like?

Brian: We try to have a holistic plan regarding resources. You have to look at what both firms have in terms of staffing and where there are opportunities to streamline.

We then try to redeploy the excess capacity where we might need additional support or in areas where we might want to start to work on our strategic plan.

"We try to have a holistic plan regarding resources"

It is really a soup to nuts, top to bottom review of people, skillsets and capacity that are doing today might not necessarily be what they will be doing tomorrow.

To get to this point, one of the elements we put a lot of time and energy into is training. While we on-board these new firms, we spend a lot of time with the employees by walking them through our systems, showing them how to navigate our processes and “holding their hands” so they are comfortable.

Michael: What has dramatically been a success for us across a number of different M&A deals is figuring out ways to right size resources in a way that it lifts people up into larger skillsets and responsibilities.

As a firm needs new resources, we intentionally recruit for and back fill at more junior levels.

This has assuaged concerns by the fact that people know that they are going to be asked as part of this transition to take on a higher level set of tasks and responsibilities and will continue to backfill with more supportive roles to lift everyone up.

This puts the firms in a better position.

Fund Operator: How long after the merger and technology integration does it generally take for the organization to see costs stabilize and even realize return on operational investment?

Michael: It varies and is highly dependent on defining things in your operational due diligence leading up to the transaction.

This includes understanding the cost and length of existing contracts. Not having knowledge of this can greatly impact your ROI.

"Bridging a culture gap is a huge challenge."

Another factor is around synergy of culture. Bridging a culture gap is a huge challenge. Finding where they are and closing them intentionally and deliberately becomes really important.

If you can do both of these things really well, then you can get to this synergistic environment very quickly. If you can’t, then it can all limp along for years.

Brian: You do see a bell curve when it comes to costs. In the beginning, you will merge the infrastructure first, then you will start to tackle data and applications, which means that costs are relatively flat.

When we then move into the heavier integration activities, you will start to see costs rise, which could have many reasons behind it.

Typically, there are resources that you need to affect that integration, such as putting large teams together to tackle different parts of the processes and associated systems.

Once these pieces start to come together, you will see costs come down.

When you get technology changes and move from legacy systems, you can eliminate maintenance contracts and software agreements, which bring down costs and help you realize the return on investments.

Fund Operator: Are there any final thought on this subject?

Brian: If M&A is going to be a part of your DNA, consider starting to build play books that will be resources that you can build on from integration to integration. This provides foundations for incorporating lessons which can be applied to different situations.

Mergers are difficult and complex, so the more you can gain and retain that institutional knowledge and make it part of your DNA and plan, the better off you will be.

 

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