Gaining a leading edge from M&A
Post-M&A restructuring should be seen as an opportunity to upskill and broaden leadership teams
M&A transactions, especially among brokers, are at a fever pitch in the insurance business. Ardonagh’s recent announcement that it is to acquire Corant Global, creating the largest “independent” specialty broking business in London, is the latest in a string of deals – large and small. Ardonagh itself has completed several acquisitions in the UK and overseas, as it expands into new product lines and geographies.
The rolling wave of broker consolidation includes Marsh McLennan (then MMC) sweeping up JLT, Aon intending to buy large sections of Willis Towers Watson, and AJ Gallagher securing Willis Re and other Willis insurance broking assets.
Meanwhile, the US private equity owner Odyssey is preparing Tysers for sale, with wholesale specialist Miller, itself recently acquired by private equity firm Cinven, a putative buyer.
As well as the big beast deals, rarely a week goes by without news from one of the so-called consolidators, like Aston Lark and Howden, adding another intermediary or MGA to their shopping list.
While there are many well-rehearsed economic and strategic reasons for merging or acquiring, especially in broking, successful integration is what unlocks value. And in a people business, where egos are sometimes on stilts, and relationships are key to competitive advantage, successful leadership restructuring is everything.
Neither power nor glory
The headlines following M&A deals are usually focussed on who’s in and who’s out. But what do all important investors want to see?
Nick O’Donnell, corporate lawyer and partner at Baker McKenzie, says that although CEOs get excited by M&A, especially transformational acquisitions, investors tend to approach them with far more trepidation.
“There are good reasons for that, as poorly-implemented M&A can be hugely value destructive. For investors, therefore, the immediate focus is not that the leadership team will necessarily be stronger, instead they want to see that the combined leadership team will still be able to do the simple things well - making and executing decisions,” he says.
“After that, there will be interest in benefiting from greater expertise - usually in the area of tech and digital - and diversity.”
Jenni Hibbert, global managing partner and head of Search Go-To-Market at consultant Heidrick & Struggles, agrees. She says that in today’s world, the focus can’t only be the bottom line; neither can it be on power grabbing or glory.
“Adding a diverse group of people to the top team is so relevant and merging organisations can allow firms to have a wider spread of knowledge, expertise and backgrounds on the board,” she says.
Hibbert cites a McKinsey study that showed how diversity can improve financial performance by more than 30%.
“The reputation of a firm is of huge importance, so falling behind the curve in terms of diversity and inclusion is both financially and reputationally risky. In some cases, mergers are the perfect way to add variety to the team with the right skills, hopefully harnessing the power that comes from having a diverse and inclusive team.”
Baker McKenzie’s O’Donnell thinks that success in combining cultures says a lot about the leadership style - although there is not necessarily a right or a wrong way to approach it.
“US companies are sometimes criticised in Europe for demanding that acquired overseas businesses adapt to US practices. However, often that criticism is not coming from within the targets as many integration processes are themselves incredibly sensitive to local approaches and values,” he says.
“Ultimately, the global success of US companies proves the point. At the same time, there are plenty of examples of M&A where the new parent is keen not to integrate businesses too closely as the unique brand of the target is part of its appeal.”
Clashes of different cultures between the merging organisations can be inevitable, Heidrick & Struggles’ Hibbert says. However, with the right leaders in place to enforce good communication and to lead from the front, these difficulties should not prove to be insurmountable.
“It is up to the leaders to ensure that this doesn't happen from the beginning of the merger,” she says. “Synergies can be achieved by having good communication channels. A diverse group of people will not have the same views and opinions on every matter, but that is why it is so valuable. Differing views allow the team to consider various angles and healthy debate can spark creativity.”
Enter the integration director
One common reason that mergers and acquisitions don’t work out is that integration has taken too long. Systems integration is especially important in pulling two businesses together - particularly where income synergies are tied to a particular system.
But integration can be challenging, especially where legacy systems are concerned.
Aston Lark, the acquisitive insurance broker backed by Goldman Sachs, recently appointed Bethan Jones in the newly created role of Integration Director, with responsibility for overseeing the successful integration of Aston Lark’s purchases, announced on an almost weekly basis this year.
Jones says that communication is the main part of any integration. “We agree with vendors in advance of completion exactly what is going to happen (and at what point) post-completion, so there are no surprises,” she says.
“This is incredibly helpful for vendors so they can give comfort and clarity to their staff in those early, and often unsettling, days. Having that consistent point of contact pre-deal and post-deal is vital to ensure that the communication line is kept consistent and the trust is maintained throughout.”
Having an in-house integration director like Jones, who understands insurance broking and systems, works for an acquisitive firm like Aston Lark. But outsourcing operational integration could be a better option for others.
“In the main I would suggest the role should be in-house. Having a consistent point of contact is really important and if that person knows the acquiring business inside out they can foresee challenges that may occur during the integration of a newly acquired entity,” Jones says.
“If, however, there is a large merger of two similar-sized businesses, having an outsourced role can add value by being that true independent and impartial person often needed to navigate the two businesses through those difficult operational decisions.”