Beating the risk of deal fatigue in advice M&A
With an advice M&A deal taking around six months to enact, two experts have shared their tips on how buyers and sellers can avoid “deal fatigue” and prevent potential deals from collapsing.
Inorganic growth via M&A has become a vital part of many licensees' future growth strategies as the need to achieve scale becomes even more crucial, and some are pursuing multiple deals.
Recent deals have included Shaw and Partners acquiring Sydney’s Kennedy Private Wealth, Link Wealth acquiring Xponential Advisory in the Gold Coast, and national firm Coastal Advice Group merging with Calder Wealth Management.
Some of this spending may also be funded by private equity firms, which businesses like AZ NGA and Ironbark Asset Management have utilised to advance their expansion plans. Ironbark merged with national advice firm Invest Blue last year and acquired high-net-worth advice practice Mercury Private earlier this year, having received $30 million from Soul Pattinson. Meanwhile, AZ NGA is targeting “super firms”, having received $240 million from US private equity Oaktree Capital.
But with an M&A deal taking months to complete, two experts have shared how both parties can avoid acquisitions or mergers falling apart as a result of waning momentum and deal fatigue.
Steve Prendeville, founder of Forte Asset Solutions, said: “Deal fatigue is a normal part of an M&A process, but it can be a real risk factor if it is not managed appropriately. Deals can easily sit in limbo if unexpected delays arise or unforeseen changes arise which can erode trust and goodwill between parties. M&A is a living, breathing process so things change all the time.”
Callum Mitchener, chief executive of Wealth Architects, said his firm would typically have 10–12 deals in various stages of the deal pipeline, but only around a third of those would come to fruition. Most recently, it acquired 100 per cent of Fiducia Private Wealth Management in Cairns and life advisory business Fitzpatrick Financial Services in Melbourne.
“We have withdrawn from heaps of deals in the past, we have a detailed due diligence checklist which lists issues and potential red flags, and we keep having to add things, so it is just getting longer as we discover new things in each deal! If these arise, then it would prompt us to dig down further and potentially pull out of a deal.”
Not only making its own acquisitions, Wealth Architects has also been on the other side of the M&A fence as Envest Group, part of global independent insurance distribution platform Ardonagh Group, acquired a majority 60 per cent shareholding in the firm in March.
Both Mitchener and Prendeville said firms underestimate how much time is involved in the process, emphasising the need to start early in preparations before an adviser actually wants to exit.
“Even little deals can easily take six months to complete by the time you have done all the due diligence,” Mitchener said. “Sometimes the vendor may pull out as they don’t necessarily realise the time it will take or the magnitude of the work involved. It is not just a payday, it takes a lot of time both pre and post-acquisition.”
Prendeville said the majority of deals he had worked on had taken six to nine months to complete.
“People underestimate the time it takes, it can be all-consuming; it isn’t like buying a house. I tell people to expect to spend 300 hours working on a deal, it is often the most challenging management decision they will take to enact successfully.”
As for their tips to ensure deals retain momentum, Mitchener said Brisbane-based Wealth Architects has employed a dedicated implementation person specifically for this purpose to ensure deals remain on track.
“We have a dedicated person for this role and her responsibility to be across all the steps in the process and keeping parties informed on what is happening and what they need to do. She will often be in touch with them multiple times a week to get in on the front foot and make sure everyone is across where they are in the pipeline.”
Prendeville said it is important to have clear, defined timelines and term sheets that detail the responsibilities for each step in the process which will help to manage everyone’s expectations at the outset.
“[Deal fatigue] may be a normal experience, but it is still important to remind both parties what they are looking to achieve from the deal, to have clear communication, to set expectations and to find solutions to problems which will allow the deal to progress.”
AUTHOR
Laura Dew
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