Aesop’s fable of The Horse, Hunter and Stag:

A quarrel had arisen between the Horse and the Stag,
so the Horse came to a Hunter to ask his help to take revenge on the Stag.
The Hunter agreed, but said: “If you desire to conquer the Stag,
you must permit me to place this piece of iron between your jaws,
so that I may guide you with these reins, and allow this saddle to be placed upon your back
so that I may keep steady upon you as we follow after the enemy.”
The Horse agreed to the conditions, and the Hunter soon saddled and bridled him.
Then with the aid of the Hunter the Horse soon overcame the Stag,
and said to the Hunter: “Now, get off, and remove those things from my mouth and back.”
“Not so fast, friend,” said the Hunter.
“I have now got you under bit and spur, and prefer to keep you as you are at present.”

 

Merger and Acquisition Mania

Earlier this month, I attended the semi-annual Tiburon CEO Summit in New York. The summit is held for Tiburon clients, and also provides a gathering of many leaders in the Wealth Management industry. One of the hot topics discussed was the amount of activity surrounding wealth management technology firms being acquired. The news has been overwhelming in regards to acquisitions of Advent, By All Accounts, Northstar, E-Money, FolioDynamix, Learnvest, Upside plus others (See What to make of Fidelity Investments paying $250 million out of the blue for eMoney). There are reports quite frequently of wealth management technology firms acquiring more capital for growth.

Two questions come to mind: 1. Why now? and 2. how does this impact me as an advisor?

Invest in Technology

The reason it is coming now is that the industry is recognizing that in order for advisors to be successful and get market share, it will require an investment in the technology supporting the acquisition and ongoing support for clients. Various existing suppliers, venture capitalists, and private equity firms see this trend and are investing in other firms in order to take advantage of the need for advisors to upgrade technology.

Acquiring Firms Want ROI

The fair question to ask is what are the expectations the new owners will have on the acquired companies and how that aligns with customers. It is fair and reasonable to expect that investments will be made in the product direction, the service model, the sales and marketing efforts, or management expertise to make the acquisitions provide a good return on investment for the acquiring company. In the short run, this should be a benefit to the clients of the acquired firms.

The Value of Independence

Anytime an investment is made, there is an expectation for when the return on investment should be realized. Once that happens, there are many options that are available. This could mean going public, selling to another firm or obtaining more capital for future growth. A client or potential client has to weigh how these individual options will impact the relationship as well as the product and/or services and whether these scenarios are positive to the relationship. The other thing that is always good to monitor when these events happen is how the culture of the acquired firm is impacted.

In contrast, a firm that is independent can concentrate on delivering a superior product and/or service to its customer base and focus the resources on these efforts without potentially coming into conflict with the expectations and needs of outside investors. (Check out Mergers and Acquisitions Mania blog post).

First Rate is proud to remain an employee-owned company with the top purpose of providing value to our clients by the way we provide our solutions and services.