SFT Due Diligence- If Approached Strategically Can Lead To A Win-Win Situation For All Involved
Michael Quinn, Executive Director and Co-founder
When undertaking an SFT, we often see due diligence being approached as a box ticking exercise, where the final checks are done to confirm that the candidate is regulatory compliant, is financially viable and does not have any skeletons hidden in secret closets. In our experience if due diligence is approached through a more strategic lens, it becomes a win-win situation at the end of the process for those involved.
The key measure of success for any Trustee expense is how it can be expressed in terms of benefits to members. Providing members with more opportunity for higher returns, lower fees and better service are the most common high-level justifications. This can be much trickier for funds considering a merge or SFT. Spending time documenting what the Trustee wants to achieve for its members will guide the process to the correct outcome.
The key outcome for the due diligence process is to confirm that the final candidate provides the greatest opportunity for achieving the target outcomes for all fund members.
The SFT project will require significant investment of money and effort to complete. Achieving the ambition will seriously test the resolve of all parties. And there will be fatalities, through rationalization (no fund needs two CEO’s, duplicate ‘Balanced’ options or two administrators), fatigue (staff overwhelmed by the amount of change) and ambition (staff of all range of experience and skill-sets leveraging the project to update their resume).
When we run a Request for proposal ( RFP) for a customer, a key step in the process is to complete due diligence on the selected candidate. It is completed before the merge to provide the organisations with an assurance of what they’re getting. In circumstances where there is no clear winner, due diligence will be completed on the last candidates to identify the winner. And while all agreements require some level of compromise, the best outcomes are achieved when all parties are clear about what they want.
The selection process, through an RFP or direct approach, puts the buyer at its greatest competitive advantage. Mature respondents already see the benefit in what is being proposed. Regardless of the approach there are clear advantages to having candidates document their capabilities and value proposition at the earliest stage of the negotiation. As the process progresses, serious candidates will improve their proposed solution to be more competitive.
Ideally, information needed to complete due diligence will be collated throughout the selection process rather than an explicit step at the end. I wonder if deals that dramatically fall apart close to the end, after promising starts and a seemingly comfortable, getting to know you, middle periods, is due to all the hard discussions about what each organisation wants as an outcome being left to the design of procurement departments and or lawyers. (Apologies to both professions to how I have portrayed them).
Final word
My point is if the organisations are upfront and clear about what they want and what they are looking to achieve from the exercise and this governs all negotiations throughout the process, then due diligence can be a process of confirming the outcomes achieved throughout the negotiations and their translation into the final agreements to govern the transition to the future state and future operations.
Regards
Michael Quinn – Executive Director
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