Business mergers usually begin with great hope and celebration, yet studies show that well over 50% of them result in misery for the employees and shareholders involved.
From the star-crossed pairing of Time Warner and AOL, to Bank of America’s dubious acquisition of Merrill Lynch during the throes of the 2008 financial crisis, the history books are full of mergers that now have us asking, “What were they thinking?”
But such failures shouldn’t surprise anyone. Businesses, remember, are composed of people, and people are prone to lapses in judgment when they get smitten with someone or something. People also have a way of getting on each other’s nerves even when they’re fairly compatible. As with married couples, business unions are successful when the two parties value the partnership enough to compromise when values or behaviors conflict.
This topic’s of special importance in the gray-haired financial advisor industry, where further consolidation is expected as a great many 50-somethings sell off enterprises they spent years building from the ground up.
As studies have repeatedly shown, too many financial advisors aren’t preparing for the transition of their business—essentially failing to take the type of precautions you would think they would be stressing for clients.
Preparing for a new generation of ownership was one of the motivations for last year’s merger of Federal Street Advisors and Pathstone Family Office. With a combined $8 billion in assets and 190 clients, the merger was no small undertaking. But as Eric Reiner reports in our cover story, this deal is one that so far stands out as an example of how to do an acquisition correctly. Pathstone Federal’s foundation was so solid after the merger, in fact, that it successfully purchased and absorbed the assets of Convergent Wealth Advisors 10 months later.
The players involved in the acquisition attribute their success to the fact that the cultures of the two multifamily offices were closely aligned from the outset.
“For advisors who are thinking about combining, it’s got to be about culture first,” says Federal Street founder John LaPann.
Pathstone Federal executives also stressed the importance of preparation: making sure all employees are on the same page and in the best position to succeed once the merged company launches.
It would seem there’s a lesson here for advisors on the cusp of retirement. At the very least, it would make sense to identify a potential buyer or buyers of similar philosophies ahead of time. This may be the most important deal an advisor makes in his or her career. Why risk a Time Warner/AOL-esque fiasco?
