Posted inAsset managers

Things to watch for in asset management M&A

Asset management firms don't typically include cultural fit as part of their due diligence process when entering into an M&A deal, according to industry sources.

Only a handful of asset management M&A has made culture a major part of the due diligence process before an acquisition, said Matthew Phillips, PwC’s financial services M&A leader for Asia. He was speaking on a panel at the 2017 FT Investment Management Summit in Hong Kong yesterday.

“[Cultural fit] is fundamental to the long-term success of a deal,” he said, adding that it is difficult to assess.

Andrew Hendry, managing director at asset management consultancy firm Westoun Advisors, agreed that a cultural mismatch between firms could increase the probability of a merger failure.

As an example, he cited two UK asset management firms that merged in 1999. Seventeen years later, people still identify themselves according to what they did before the merger.

“If you look at the lack of collaboration between people, all you have to ask is are you [ex-company A or ex-company B],” Hendry said.

Team disruption

A merger can also be disruptive to an investment team, which tends to have distinctive working methods as well as various personalities who, over time, have learned to collaborate reasonably well.

Differences in investment strategies, market focus, technologies and how a team advises clients are possible point of tension, said Adeline Tan, head of advisory at Mercer Hong Kong.

According to her, firms should evaluate during the M&A due diligence process how the different teams would perceive each other. “I think that is one way to address and tackle this culture issue,” she said.

The discussion comes at a time when asset management firms globally are facing dwindling sales, rising costs and fee pressure. Those difficulties have made the industry’s CEOs look at strategic alliances or joint ventures, or plot M&A with other firms.

US-based Henderson and the UK’s Janus Capital, for example, completed their merger to form Janus Henderson Group last month. Aberdeen Asset Management and Standard Life announced in March their agreement for an all-share merger. Another deal, which is expected to be completed in the first half of this year, is Amundi’s purchase of Pioneer Investments.

Campbell Fleming, global head of distribution at Aberdeen Asset Management, shared his experience with the cultural fit issue during the firm’s merger with Standard Life.

“I like to think about it as whether we share values. You make sure that everyone understands the strategy and the alignment and if you keep on talking about the values, then you can get through things,” he said.

He added that it is pretty easy to determine whether a firm is client-focused or product-led. “Overtime, it just comes out.”

War for talent

Finding professionals with functional competency in investment management, compliance, marketing and other roles, is another challenge, panelists said.

“Compare [today] to 40 years ago, when you had a couple of analysts and you were better than your next door neighbour,” Westoun Advisors’ Hendry said. Now, having more analysts does not necessarily provide a competitive edge because firms have the same level of access to information.

Hendry added that 20 years ago, there was only one job in investment management, which is being a portfolio manager or analyst. Now there are a multitude of positions in the field.

Bringing people into other functional areas should get more attention. However, asset management firms would need to hire from other industries to get the best people in areas such as marketing, public relations, operations and IT, he said.

Aberdeen’s Campbell agreed that finding the right people is difficult while at the same time salaries are rising.

Mercer’s Tan, however, believes that times are changing and younger professionals are eager to learn about the industry.

She believes the younger generation is interested in “how money works” and not “how to make money”, which means they want to learn about the different functions within investment management.

“And I’ve seen people say that `I would like to be a chief compliance officer of a wealth management or banking firm, what do I need to learn about the asset management industry, do I need a law degree for that or do I need to take banking and finance?’”

Part of the Mark Allen Group.