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Holger Kern

Dr Holger Kern: Common half-truths in M&A

BY HOLGER KERN

Valuations for private banking assets dropped significantly after the end of the last major boom in 2007. The landscape of private banking is rapidly changing as large local institutions try moving up the value chain and full service private banks try leveraging their corporate banking set-ups to gain bigger shares of the market.
In a quest to tap Asian wealth, multiple initiatives in private banking have been created which will lead to multiple M&A opportunities in this sector. Although opportunities are developing, executives should resist the temptation to assume that their organizations possess the whole truth about M&A management and should be wary of the following “half-truths” regarding some of the common M&A pitfalls in the world of private banking:
1. To satisfy investors, an M&A transaction must unlock big value gains quickly: The way to impress investors is to deliver on your promises, so resist the impulse to promise more than you can deliver in a short time.
2. Focusing purely on the deal’s strategic purpose during the integration ensures that the vision will come true: You should translate the vision into an “end-state” definition that includes the new company’s products, platforms, resources, locations and other attributes.
3. A detailed master plan is essential for a successful integration: You need an overall plan, but don’t overestimate what you’re likely to achieve by creating one or underestimate the need to augment and revise it as you go along.
4. Responsibility shifts as merger cycle proceeds: There will be some role changes over the cycle, but the whole team should be involved from start to finish.
5. During integration you should strive to retain key managers and employees: You should re-enroll not only people inside the organization, but also other key constituencies, including customers, suppliers and business partners.
6. Constant communication keeps employees informed and prevents unwanted departures: You need more than just Rhetoric from the front office; you also need leaders who model the desired values and behaviors of the merged organization, as well as mechanisms that permit communication from the organization to the leaders.
7. To achieve planned revenue synergies, start implementation early and push hard: In the early stages, the challenge is to keep sales and customer service from getting hurt by the turmoil. Focus on avoiding harm rather than achieving big gains.
8. Precise targets for reduction are vital for capturing synergy: Being specific about reductions is important, but reductions from what? The starting point from which the cost reductions will be measured should be clear as well.
9. Day one should be issue free: Issue-free doesn’t mean perfection. Focus on essentials and go with solutions that are 70 percent perfect but 100 percent achievable.
10. Day one marks the end of the beginning: Day One is a crucial milestone but hardly the end of the line. Much will remain to be done and integration efforts will need to be redoubled as Day One fades into history.

In regards to the Private Wealth Management industry, banks need to stick to their growth plans but they shouldn’t get too “greedy” – as investment banks have shown – by trying to do too much at times when valuations are comparably lower.
Of course there is a window of opportunity for large local banks or foreign full service banks to become significant players in these sector but these firms need to make sure that it really is a match.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.

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Holger Kern

Holger Kern

Holger Kern is a Partner (Financial Services) at PwC. He has 20 years experience in the consulting and private equity industry including regional and global leadership positions at Roland Berger, Monitor Group, Deloitte Consulting, Management Engineers and PricewaterhouseCoopers.

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