Depending on which study you read and how success is measured, somewhere between 70% and 90% of mergers and acquisitions fail to deliver what was expected of them.
The precise number is debatable, but the warning isn’t. Buying a business is considerably easier than combining two organisations with different cultures, systems, processes and ways of working.
And there’s no reason to assume wealth management should be any different. Advice businesses aren’t interchangeable, and those differences can be both the source of an acquisition’s value and the reason that value proves difficult to realise.
Every acquisition makes a consolidator larger. But unless it’s integrated well, it can make the business weaker too…
Assets can outgrow the operating model
UK wealth management has attracted significant private equity investment over the last decade. National consolidators have emerged, acquisition pipelines have expanded and assets under management have grown rapidly.
Whether that activity has consistently created durable value, though, is much harder to determine.
An acquisition adds assets and revenue at completion. It doesn’t automatically improve margins, create a coherent organisation or make the next deal easier to absorb. The value in the investment case still has to be earned through integration.
An acquired firm may bring another platform, charging structure, investment proposition, data model and set of adviser processes into the group. Too often, firms accommodate every difference rather than making a deliberate choice about what should be preserved and what should be removed.
Existing systems remain in place, familiar processes continue and tactical integrations are built around them. Operations teams create workarounds, advisers learn which rules apply to which customers and spreadsheets bridge the gaps between disconnected systems.
The deal may have completed, but the businesses haven’t truly combined.
This creates what I like to call ‘integration debt’: the accumulation of platforms, processes, data and operational exceptions left behind by successive acquisitions.
Like technical debt, it builds gradually and can remain hidden for some time. People compensate by adding headcount, relying on institutional knowledge and becoming remarkably skilled at navigating the organisation’s complexity, creating the appearance of scalability while steadily eroding it.
Integration debt increases the cost to serve, makes consistent customer experiences harder to deliver and limits adviser productivity. It weakens group-wide data and consumes capacity that could otherwise support proposition development, customer service or another acquisition.
Most importantly, the effect is cumulative. Every unresolved exception becomes another constraint the next deal must navigate, meaning assets can grow far faster than the operating model beneath them – and the business becomes progressively less able to extract value from that growth.
Bigger can mean weaker
Headline growth can disguise this for quite a while. A consolidator may continue to add assets, revenue, advisers and firms while becoming progressively harder to run. Strong markets can flatter performance, additional people can absorb pressure and another acquisition can provide a fresh burst of top-line growth.
But none of that proves the underlying business is becoming easier to scale. After all, scale and scalability aren’t the same thing.
A large organisation held together by manual intervention and disconnected technology may be more fragile than a smaller firm with a coherent operating model. It may depend on repeated transformation programmes simply to stop its existing complexity becoming unmanageable.
The ability to source and complete deals therefore only tells us so much about the quality of a consolidator. Headline growth can conceal an organisation that is becoming less coherent, less flexible and more expensive to change.
Preserve difference, remove complexity
Good integration doesn’t mean making every acquired firm identical. A strong brand, trusted customer relationships, specialist expertise or a distinctive investment proposition may be central to the value of the deal; removing those qualities in pursuit of uniformity would only destroy the exact characteristics the buyer wanted.
The challenge is to separate meaningful differentiation from accidental complexity.
A group may reasonably retain different brands or service propositions, but it probably doesn’t need several ways of completing the same routine operational task, multiple versions of the same customer data or separate technology simply because nobody has tackled the integration.
Strong operating models standardise where consistency improves efficiency, control and customer outcomes, while preserving differences that genuinely matter.
And behind it all, technology architecture determines just how achievable that balance is in the first place.
Can an acquired firm move towards the group’s operating model in stages, rather than through a disruptive migration? Can different propositions operate on common infrastructure, supported by consistent customer and operational data? And can the group introduce new capabilities without creating another bespoke integration?
These are questions we explored in more detail in our recent work on architectural control – and they directly determine the pace, cost and risk of integration, as well as the strategic choices available afterwards.
Flexible infrastructure gives management greater control over how quickly an acquired business could or should change. Inflexible technology, meanwhile, leaves the firm choosing between another costly transformation programme and another permanent exception.
The next deal is the test
Before pursuing another deal, leadership teams should ask a simple question: would this acquisition make the business stronger, or merely larger?
Acquisition creates the opportunity for growth. Integration – or the lack of it – determines whether that growth creates lasting value or just another layer of debt.
