By Andrew Sehulster and Abbey Shasore
The reason why senior management make an acquisition is to compete better or achieve a different market positioning. With the best intentions, however, they may not necessarily know how to implement that acquisition in terms of combining processes operationally.
Whether it’s reporting, accounting, performance measurement, front office, or anywhere in the investment lifecycle, the best approach is to look at the situation holistically and decide where the unified businesses can derive the best return on their technology investment in the long term.
Wrong people, wrong decision
We have experienced situations where some of the right people that should be included in strategic decision-making aren’t present in the initial stages and are only brought into the room when it’s a fait accompli. This is one reason why the merging of investment reporting operations can take much longer than expected and not deliver the best results.
Cost of ownership analysis
Analysis involving the comparative costs of the vendor solutions and the expense of the requisite operational staff would be highly beneficial in many instances, yet most asset managers will not wish to undertake such a deep evaluation during an acquisition.
Retain or redeploy?
Strategically, as a combined organization, the firm should seek to be more client-facing because the clients are likely to be concerned about the new entity. All too often we see the focus being on internal factors across the two businesses, as opposed to external factors such as client preferences. The maxim here is that if the new entity has more bandwidth to focus on client service, don’t wait until all the operational arrangements are complete before doing so.
The best way to consolidate
Is there a ‘best way’ to consolidate in the area of investment reporting – both in terms of people and systems? Obviously, every merger has its own, unique problems to overcome, but here are five general pointers that will increase your chances of success.
i)Take advantage of the opportunity to listen. The fact is that clients may have a completely different perspective from the Head of Client Reporting on whether processes need to change and to some extent asset managers should let the clients drive the project. Reveal some of the reporting capabilities that the other firm has and ask if this is functionality is something they would wish to integrate.This may result in a more substantial reporting project, but it will usually deliver happier clients that are far less worried about the new combined organization and how they are going to be serviced in the future.
ii)Devote time to the people. It’s more often the resources involved rather than the integration of the various systems in play that cause the most headaches. The tendency is that Heads of Operations are more inclined to look at the comparable systems rather than the people involved because it’s easier to tell a system what to do rather than tell people what to do.
iii)Don’t assume that the acquiring company’s systems are better. If reporting is the heart of your client servicing, then you shouldn’t consolidate if one group of clients has a completely different set of requirements, unless one system can handle both sets with excellence. There’s no need to rush into a consolidation if the reporting requirements are drastically different and there shouldn’t be a desire for such a measure.
iv)Be patient. The chances are that the two businesses will have very different outlooks and client bases, and therefore different demands on reporting as a client servicing tool. Consider a transitional set of activities rather than a ‘big bang’ approach.
v)Remember the importance of data. Even if the decision is taken to have a transitional period before any modifications are made, several sources of data are likely to change. You’ve still got to get that data to the reporting tool. One or both asset managers may have established data warehouses or a data hub that can be curated to feed the vendor solutions, but in our experience, it is very rare for asset management firms to enable ‘plug and play’ with their data management solutions.
Conclusion
When merging investment reporting processes, as in any operational zone, there is no magic bullet as every case is different. It’s fair to say, however, that more analysis should be done as to the best long-term solution for the firms involved and their clients before attempting any consolidation.
Of course, for the larger firm the burden to deliver a return on investment from the acquisition can result in a rapid consolidation with little strategic input to the process. Although time pressure is an ever-present factor, it can sometimes be advantageous to operate as separate entities for a period and let the dust settle before making those key client-facing decisions.
With a more considered approach both companies will focus their attention on objective factors, to the long-term benefit of both companies and the clients themselves.
Andrew Sehulster, President of investment operations consultancy ICC, and Abbey Shasore, CEO of investment reporting provider Factbook
