Rick Hough has integrated five advisory firms into Silvercrest Asset Management Group over the past decade and he's now working on a sixth for the $18 billion investment advisory giant.
The experiences have taught the chief executive what factors make — or break — a successful integration, an increasingly important task as more firms seek inorganic growth.
"It's an enormous issue in this business, in part due to the fact that it's a personal services business where the assets can walk out the door and go down the elevator every day," Mr. Hough said.
Although the economics of the deal are important, negotiations that focus too heavily on how much money the firms will give or get are a red flag. Leaders of firms pushing for a particular number probably don't believe culture is particularly important or are overlooking it, he said.
"Money is not enough at the end of the day, and you start rubbing on each other if you don't have a good cultural fit," he said.
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It's also important to establish an understanding of what will be integrated before the deal is inked. Details of how the firms will deal with differing policies and procedures and how investment philosophies will work have to be clarified and shared with staff of both firms, he said.
FOUNDER'S ROLE
Hammering out the role that the founder of the firm being acquired will fulfill in the new organization is crucial, because in many firms, the founders have many roles and responsibilities "and it's hard to give up a lot of that control," Mr. Hough said.
The leaders have to accept different roles when they join a much larger organization like New York-based Silvercrest, which manages $11.6 billion in discretionary assets and $6.3 billion in non-discretionary funds.
Firms need to be sensitive when dealing with the staff of both firms because many of the staff people have important roles with clients, he said.
"And you don't want to disrupt clients."
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Staff roles may need to be reoriented to focus on certain tasks at the bigger company, he said.
The overall process of integrating an advisory firm is likely to take at least a year, and aligning the technologies is likely to be the most expensive and time consuming aspect, he said.
"You always will have some issues to deal with, but to get ahead of them is important," Mr. Hough said.
Tip sheet:
• Have an integration budget, which is separate from the deal itself. Tech systems usually eat up the largest portion of that budget.
• Figure out in detail what the role of the founder of the acquired firm will be before inking a deal.
• Bring the staffs of both companies together to meet shortly after the deal is closed, and make sure they are comfortable with the changes.
• If staff cuts are needed, make them before integrating the two firms.
• Be patient; it takes at least a year to fully integrate a businesses, and it can take a couple years to complete changes within client portfolios.
• Have a dedicated and committed team who are responsible for integrating all systems.
