Financial services M&As to fail in 2014

Despite the substantial amount published on successful merger strategies, Connect chief executive Paul Tynan said the industry will fail to navigate the process successfully once again this year.

“The financial planning sector has a 30-year track record of failed acquisitions, which today is reflected in the loss of client value, advisers, management and capital investment written off,” said Mr Tynan.

This is not restricted to one segment of the industry, he added.

“Large corporate businesses do not have the monopoly on failed transactions. I have also seen small businesses and individual planners make the wrong decisions based on their last BDM/PDM conversation or whoever has the biggest cheque book,” he said.

Mr Tynan said advisers make poor decisions about choosing the right dealer group or partner, and about when to sell.

He believes unsuccessful mergers and acquisitions are often due to short-term thinking, a lack of industry knowledge and insight, a lack of networks and resources, an excessive focus on the bottom line and unexpected circumstances resulting in a rushed decision.

Minimal merger and acquisition experience and poor planning are also factors Mr Tynan believes contribute to failed mergers and acquisitions.

A lack of mental engagement in the process can be a barrier to success.

In terms of overseas acquisitions, Australian companies have a limited understanding and appreciation of cultural issues, which has led to a poor track record in this area.

According to Mr Tynan, there needs to be greater focus on non-measurable issues such as key person risk, business culture, management issues, compliance and whether the owner is ready to sell.

Connect believes the best outcomes are achieved by firms enlisting professional assistance to guide them through the process.

The firm argued the cost of engagement is insignificant compared with the potential loss of capital, clients and business disruption.

“Whether selling, merging or acquiring, it is important to understand that the process takes time in order to achieve the desired outcome and in many outcomes and in many cases, the parties will only have a single opportunity to do it right,” said Mr Tynan.

“So irrespective of size, businesses would be better off outsourcing their selling, merging and acquisition activity as the cost of engaging a consultant can never match the loss of shareholder capital and opportunity cost for bad decisions.”