In spite of a sharp but brief slowdown because of the pandemic, 2020 was a record year for mergers and acquisitions in the wealth management space. According to Wealthmanagment.com, firms completed between 159 and 205 deals, depending on who’s counting and how one defines a wealth manager.1 And now, the experts who track M&A activity are predicting an even bigger year in 2021. In fact, in the first quarter, Echelon counted 76 deals, the most active M&A period in the industry’s history.2
The drivers of this surge are many and well documented, notably including:
- Firm founders reaching retirement age and looking for a succession plan and eventual exit
- Competitive pressure, compliance requirements, and advancing technology driving smaller firms to seek consolidation
- Strategic buyers creating scaled wealth management practices fueled by ready access to capital and low interest rates
Whatever their reason, firms have to meet a number of challenges in order for a merger to deliver the expected synergies and economies of scale. One of the biggest is technology integration. Too often, technology is treated as an afterthought, when it really needs to be one of the first things on the table. The success of a merger may well hinge on the technology decision and the new entity’s ability to manage the transition with no apparent disruption in client service. As Deloitte states in its report, “Creating value through M&A,” “Agreement on operational platforms should be established as early as possible, not least because those choices directly determine synergies and integration costs and influence ultimate deal value.”3
Firms entering into a merger essentially have three technology choices:
- Allow each of the firms to continue using its own platform. This only makes sense if the combined entities plan to continue operating as separate brands. This type of acquisition is usually more about revenue growth than achieving economies through operational consolidation.
- Consolidate on one of the two entities’ existing platforms. This can be a lengthy and painstaking process, as the consulting firm EY points out: “Technology synergies can be difficult to achieve due to the complexity of legacy systems, the challenges of platform migration and long-term contracts with technology providers.”4 It is made easier, however, if one of the entities has a more advanced, open and flexible platform – ideally in the cloud, which makes it easier to migrate advisors and clients.
- Start fresh. Both firms abandon their legacy systems and use the merger as an opportunity to implement a new, modern platform to optimize advisor productivity and client engagement.
The Black Diamond® Wealth Platform has helped a number of firms navigate the intricacies of a technology migration in an M&A scenario. Our proven implementation methodology helps accelerate and streamline the process so that your clients can be assured that service and access will not suffer during the transition. Whether you are looking to buy, sell, or otherwise join forces, it pays to talk to our team early in the process to understand both the challenges and the opportunities in consolidating your new firm on the Black Diamond platform.
Learn more about how the Black Diamond Wealth Platform can support your business. Request your personalized demo.
- Britton, Diana, “The M&A Trends Set to Shape Wealth Management in 2021”, WealthManagement.com, January 22, 2021, https://www.wealthmanagement.com/advisor-channels/ma-trends-set-shape-wealth-management-2021
- Fisher, Michael S., “RIA M&A Activity Sets Records in Q1”, ThinkAdvisor, April 15, 2021, https://www.thinkadvisor.com/2021/04/15/ria-ma-activity-sets-records-in-q1/
- Creating Value through M&A: A Guide for Investment and Wealth Managers, ®2019 Deloitte LLP. https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/financial-services/deloitte-uk-value-creation-through-ma.pdf
- Salsberg, Brian, “How to enhance M&A deal value in the wealth and asset management sector”, November 18, 2019, https://www.ey.com/en_us/strategy-transactions/how-to-enhance-m-a-deal-value-in-the-wealth-and-asset-management