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Should investment integration headaches scupper a takeover?

Should investment integration headaches scupper a takeover?

The perils of integrating investment propositions is one of the lesser publicised aspects of the latest mergers and acquisitions (M&A) trend that is gathering pace in UK wealth management.

‘Economies of scale’ and ‘enhancing propositions’ for the underlying client through M&A activity are familiar refrains. However, the potential liabilities and work involved in merging investment processes receive far fewer headlines.

Given the resources it takes to integrate different investment propositions, monitor underlying holdings and ensure there are no potential liabilities in inherited portfolios, can this aspect make or break a potential deal?

The argument follows that to make a deal worthwhile, an acquisitor will look to run a centralised proposition across the enlarged group and potentially merge the two. But bearing in mind the Financial Conduct Authority (FCA) warnings in recent years on centralised investment propositions, firms must make sure the regulator does not believe that clients are being ‘shoehorned’ into propositions or exposed to additional charges.

Towry, led by Andrew Fisher, is known for having a centralised discretionary offering but it is now running investment propositions from businesses that it has acquired concurrently, alongside its core discretionary range.

Part of the rationale behind this is to avoid the perception of any potential conflict of interest if the team did attempt to move clients into the centralised proposition. It has meant more research resources are needed to cover underlying fund holdings that came over in client portfolios.

It is a move Brooks Macdonald would not undertake as a result of acquisition activity. Chief executive Chris Macdonald said the investment offering of any potential target could make or break a deal.

If it came to buying another investment management firm in the UK, Brooks would look to integrate the incoming investment proposition into its centralised risk-rated fund management style as quickly as possible.

‘We see it as a key part if we are looking to integrate a firm. You should know about the investment management process and it should be part of the due diligence questionnaire,’ said Macdonald. ‘You cannot have a separate part of it [the business] running money in a different way. The acquisition would not happen.’

Following Brooks’ acquisition of Channel Islands-based Spearpoint, Macdonald said its risk-rated process forms the basis for the offshore business although there are differences between the propositions due to Spearpoint’s more offshore focus and non-sterling mandates.


His sentiments are echoed by Sanlam Private Investments’ (SPI) CIO Richard Champion, who said in his experience, deals had not been done as a result of the underlying investment process of a target.

‘I can think of an example where there was a particular style of investment sold to the client base. Although the principals in the business were keen to do the deal, one of the things we felt was that clients had been sold something that was too distinct from what we offered.’

With this in mind, SPI makes sure a target has sufficient buy-in to its centralised proposition from the outset. ‘Otherwise you can end up in endless battles,’ Champion said. ‘As the acquirer you need to be careful in your due diligence that the buyer accepts the centralised proposition. We have plenty of leeway within our system, which is necessary as clients are different.’

The firm runs a centralised process with recommended buy lists and senior managers are given autonomy to then build portfolios according to client objectives.

‘From our perspective I should stress that one of the good things about buying businesses is keeping an open mind. You can pick up positive things from the businesses you buy, for example the asset classes they are looking at or the way they communicate with clients,’ he said.

‘Ultimately, you need to have an overriding discipline. You can’t run three to four investment processes within one business. It is not cost-effective in this world.’

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