Many promising superannuation fund mergers over the last decade have failed to eventuate and unfortunately there is little to no research to help us understand why.

The question is, why are merger talks prone to collapse especially after the many efforts, expectations and money invested in due diligence, even when benefits to members, employees and the fund seem to be clear?

It will never be one reason, rather several factors in combination that ultimately cause one or both parties to walk away. It is normal to experience differing expectations during merger talks and therefore critical to anticipate potential roadblocks so they can be navigated effectively.

Merger talks will typically reach an impasse during or soon after the due diligence phase. Skeletons in the closet can be uncovered resulting in one or both parties finding unacceptable levels of risk, reduced value or merit, implementation risks or parties simply cannot agree on important terms and so on.

Funds contemplating merger must not only prepare their fund for due diligence interrogation, but key players and fund representatives must be capable of advanced reason and interpersonal effectiveness to avoid missed opportunity.

Common roadblocks in merger talks of superannuation funds 

• Perceived or actual complicated and costly implementation risks.

• Lack of preparation by one or both parties.

• Disagreement with proposed board composition or appointment of senior positions.

• Investment strategy differences, transitions and exit costs.

• Change averse culture in superannuation and tendency to revert to the status quo (cold feet).

• Unresolvable differences in corporate values and approach.

• Deal fatigue due to length of negotiations, unrealistic expectations and inability to find middle ground.

• Tax implications (though capital gains tax is no longer a cost).

• External factors (COVID-19 not a common, but fitting example of disruptions that come out of nowhere).

It is imperative to set your fund up for success by presenting a healthy fund without embellishing the facts. Funds that have been involved in many mergers will have made the rookie mistakes that funds merging for the first time may encounter.  

There is definitely an art to making achievable what is a relatively complex transaction with many moving parts and many points of view. Extensive experience is essential and where it is not available internally, hiring experienced personnel or trusted advisors will be critical to avoiding pitfalls and preserve success. 

General advice for superannuation funds considering merger 

• Assemble a first-class merger committee of executives, managers, trusted advisors and consultants.

• Be crystal clear on what success looks like and how it will be measured.

• Avoid ‘deal fever’ and be able to identify deal fever in others to prevent deficiencies in objectivity and reason.

• Strive for simplicity and always revert to the best interest of members.

• Don’t leave everything to appointed advisors just because they command a high fee.

• Don’t compromise too heavily only to justify compromises with the term ‘strategic’ investment.

• Ensure merger implementation costs are assembled by people with real-world experience, including input from internal managers and trusted advisors.

• A specialised culture audit across both organisations can be beneficial especially if there is limited internal capability to truly assess cultures and subcultures.

Mergers naturally are more likely to proceed when the due diligence process depicts a win-win situation for both parties. This win-win is an attitude and a practice that must be maintained throughout the entire merger, along with mutual respect and cooperation.

In some cases, walking away can be the correct and best option, in other cases it is an opportunity gone begging.

Either way, it is prudent to have a plan around knowing when to avoid further losses and elegantly disengage from merger talks. It is also important to have other real merger options lined up to keep the merger conversation momentum.

QMV has supported clients across countless super fund mergers, successor fund transfers, transitions and transformation programs. We can assist funds considering this as a strategic option with market compatibility analysis and ongoing advisory, right through to successful delivery.

Regards 

Michael

Michael Quinn - Executive Director (co-founder)

QMV provides trusted advisory, consulting and technology to Australia’s leading superannuation, insurance, banking and wealth management organisations. For further information please telephone our office p +61 3 9620 0707 or submit an online form.

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