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Post-Merger Integration: 'Yes' Is Nothing Without 'How'

Making a deal isn't the most important thing—it's making one that's a right fit and can actually be implemented.

In Never Split the Difference, his book on negotiation, former FBI hostage negotiator Chris Voss states that, “’Yes’ is nothing without ‘How.’” Voss, who made a living brokering some of the most high-stakes negotiations, in which lives were literally on the line, states, “Your job as a negotiator isn’t just to get to an agreement—it’s getting to one that can be implemented and making sure that happens.” While far from being a life-and-death scenario, he makes a statement later in the book that applies profoundly to registered investment advisor mergers and acquisitions: “You don’t get your profits with the agreement—they come upon implementation.” 

We’ve found that RIA buyers who achieve the best post-merger integrations are those that approach the transaction with the proper mindset. Let’s assume that Wayne and Garth would like to consummate a merger between their two RIAs. Instead of haphazardly shutting down Garth’s systems and immediately onboarding them onto Wayne’s existing systems, processes and workflows, Wayne could greatly advance negotiations with Garth by meeting with Garth’s entire leadership team and proposing, “If we are truly going to make 1 + 1 = 3 with this merger, let’s work together to create a profitable and scalable business that we will all be proud of six to nine months post-close of our transaction.” In order to achieve this, both parties need to view the merger as an opportunity to look critically at their own infrastructure, people and processes, and compare them with that of the other firm. Maybe Wayne’s performance report captures everything Garth has been trying to convey to clients during portfolio reviews and should be used by all advisors going forward; perhaps Garth has a financial planning process that should be implemented by the combined firm; and maybe Garth’s Client Concierge is talented enough to lead Wayne’s entire marketing team once the transaction is complete, etc.

In order to make these determinations, a critical review of Wayne’s business should take place before he arrives at the negotiating table. Employees in charge of the client experience and the various systems and workflows should be interviewed and asked, “What is working? What is not working? What resources do you need in order to continue providing white glove service to clients, should more and more client relationships continue to be added over time?” This same analysis needs to take place in the offices of Garth’s RIA. With both firms’ pain points top of mind, both parties can come together and not only negotiate deal terms but also map out how these two firms will come together and create real value for clients, employees and owners of the combined business.

The press and multiple investment bankers have reported that with the current M&A landscape in the RIA industry, there are 40 to 50 buyers competing for every seller. As a buyer, it is almost more difficult to get a seller to sign on the dotted line than it is a prospective new client (will a client really consider 50 advisors before investing with one?). Imagine how powerful the impression would be on Garth and his business partners if Wayne humbly sat down at the negotiating table and said, “We’ve reviewed all of our people and processes, as well as yours. We believe our firm can solve these pain points of yours, and we feel that your firm can fill these holes in our current offering. Here is our documented onboarding plan of how we intend to implement our systems and workflows alongside yours, creating a repeatable, scalable and profitable business for us all.” Wayne can further lock in Garth’s commitment by asking two more questions recommended in Voss’ book: “How will we know we’re on track?” and “How will we address things if we find we’re off track?”

With these operational “hows” solved for, getting the final “Yes” to deal structure and valuation will be much simpler. As Voss points out, “A surprisingly high percentage of negotiations hinge on something outside dollars and cents, often having more to do with self-esteem, status and other nonfinancial needs.” 

Matt Sonnen is founder and CEO of PFI Advisors, supporting RIA owners and operations professionals focused on profitability. Follow him on Twitter at @mattsonnen_pfi.

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