For some reason, corporations and consultants are obsessed with the letter “P.”
When sound business principles are mixed with a dash of apathy, many companies often default to evaluating People, Process, Productivity, Product, Profits and Philosophy to measure success – or in the case of mergers and acquisitions, compatibility.
I’d like to propose we add another P to the list, one that is perhaps the most critical to ensuring that a deal is successful after the close: Psychology.
In talking with some of the most active dealmakers in my industry, over the last several months, it’s become clear that successful wealth management leaders are often aware of one simple fact.
They are human.
They are aware that emotion can – and most likely, will – at some point impair their rational ability to make decisions during the deal process. Awareness, of course, is just a starting point. These dealmakers also put guardrails and checks in place to ensure that they don’t lose focus when emotional variables can enter the M&A equation.
Mind Over Money
“We all talk about the importance of culture and alignment, but everyone ends up spending the majority of their time on the deal structure and the finances,” said Greg Friedman, the founder and CEO of Private Ocean, a San Rafael, Ca.-based wealth management firm that manages $2.3 billion in assets.
Mr. Friedman and I talked about the psychological elements of dealmaking at length during a recent “Behind the Deal” podcast. Earlier this month, when I interviewed Kay Lynn Mayhue, president of Merit Financial Advisors, about some of her recent deals, the conversation often shifted from execution to emotion and psychological considerations.
These have become increasingly important topics that deserve more attention — particularly as our industry has experienced record levels of M&A activity in recent years, according to research complied by our team at ECHELON Partners.
In my experience, there’s often an unexpected energy and excitement level that can creep into the deal process. The faster and further a deal progresses, the easier it is for that energy to become more prevalent – if not dominant – and cause a change in the deal’s perceived priorities.
Mr. Friedman, who has executed four deals over the last decade and authored books on culture and leadership for wealth managers, has seen this among some of his peers as well. He noted that many firms, particularly when entering the sale or merger process, have crystal clear priorities:
1. Make sure the transaction will benefit the firm’s clients
2. Identify a partner that is culturally aligned with existing employees – and can create growth opportunities for the current team
3. Get a fair deal
“Then they sell to the highest bidder and the rest of it is not a good fit,” he added. “They end up being unhappy, their employees are unhappy, and no one wants to talk about it.”
Pre-work and Deal Psychology
The right M&A mindset can be developed with some initial “interior work” as Mr. Friedman puts it, or an honest introspective assessment.
With the sale of a business, the owners of a firm need to carefully evaluate their personal objectives and what they really want as a result of a transaction.
The best leaders anticipate and process how they will feel, for example, if they have less control or decision-making authority after the close. They establish a comfort level with a new role before they pursue a deal, which allows for smoother and more focused negotiations. Ultimately, it reduces the potential for conflict at the top after a merger — and sets the appropriate tone for combining cultures and unlocking alignment opportunities.
As part of the interior work, they also tend to rely on trusted third-parties — coaches, consultants, bankers or strategic advisors — that can understand and balance the owners’ objectives with the broader objectives for their transaction.
In the end, they do a tremendous amount of pre-work to mentally and psychologically prepare for the potential realities of their next chapter.
“Just imagine, it’s the Monday morning after the deal closes and the excitement of getting a deal done becomes reality. Are you really happy with what you have?,” said Ron Carson, founder and CEO of the Carson Group, an Omaha, Neb.-based wealth manager with roughly $12 billion in assets under management.
“Sometimes you can get so caught up in getting a deal done,” added Mr. Carson, who has participated in more than 30 deals during his career.
But to maintain focus, he says it’s critical to spend time consistently visualizing the future and understanding the answer to one key question: “How will you really feel after the deal is done?”
Get The Best Financial Tips
Straight to your inbox
Subscribe to our mailing list and get interesting stuff and updates to your email inbox.
Thank you for subscribing.