Financial services organizations are increasingly using pre-signing integration plans to create value out of a deal and appease shareholders, investors and regulators, according to EY’s Striking the right chord: M&A integration in financial services .
According to the survey of 200 asset management, bank and insurance executives, 70% of financial services organizations had a synergy and integration plan in place prior to signing, a number that rose to 93% with deals of US$1b or more in value. More than two-thirds (69%) of acquirers included resources from the target company as part of the integration program, and slightly more than half (52%) of all companies said more resources could improve future integrations.
Organizations are no longer waiting to complete due diligence before thinking about how the deal will create value. The survey found that 29% of respondents that had a pre-signing plan realized a 40% reduction in the target’s cost base through synergies, while only 12% of respondents without a pre-signing plan achieved that scale of cost synergy.
Aurelia Costache, Financial Services Industry Advisory Leader, EY Romania, states:
“The study, which is based on the experience of 424 transactions closed during the past three years, strikes essential elements that financial institutions must take into account in integration projects: from planning, team, benefits measurement, execution, up to human resources and technology. It is an exhaustive study, very useful to organizations that are now in the process of making a transaction, for knowing where to prioritize their efforts so that they can insure the integration success.”
Close to a quarter (24%) of respondents identified operations as the most important area to consider in Day One and 100-day planning phases, while 22% identified legal, risk and compliance, and 17% identified finance, treasury and tax as the most important. Front-office functions often were considered later in the process.
Human resources and information technology touch every aspect of integration, becoming either key enablers or key constraints. Identifying how to bring the IT applications and infrastructure of two organizations into a common architecture was cited as the biggest challenge by 27% of respondents and was the top issue among asset managers, banks and insurers. Twenty-one percent of respondents identified retaining key talent as the most challenging aspect of HR integration, a number that was greater (28%) among asset managers, possibly reflecting the typical concentration of client relationships and investment expertise in a small group of front-office staff.
Florin Vasilica, Leader of the Transaction Advisory Services, EY Romania, states:
“The international financial services market is going through a realignment period, which is marked by the consolidation of leading players, as well as by the positioning of small players on specific niches. The local market is seeing in the past two years a strong consolidation wave stemming from the movements on external markets, as well as from a necessary realignment due to the fragmented local market.
The number of transactions growth, made either as separate entities, or as client portfolio, on the banking, insurance, leasing and broker services market, has determined the success of a transaction to be measured through the ability to integrate the entities in the post-transaction stage, as a way to generate value for the buyer.
Regarding the integration, EY Romania’s local experience shows that the value for the buyer is maximized in transactions where these elements are present:
1. An operational team from the buyer involved in all activities, which leads the integration of systems and the communication activities with end-clients
2. A professional and experienced process management team, led by an external advisor
3. Legal issues solved at the beginning of the process through the involvement of top lawyers, except for regulatory elements, where the involvement of authorities is necessary (Cmpetition Council, NBR, ASF, ANSPDCP etc.) and
4. A buyer and a seller both interested in a correct transaction and not an opportunistic one.”
During the past two years, EY has offered support in transactions in banking, insurance, leasing and broker services in Romania and is the main consultancy partner for the financial services market.
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About EY Romania
EY is one of the world's leading professional services firms with approximately 190,000 employees in 700 offices across 150 countries, and revenues of approximately $27.4 billion in the fiscal year that ended on 30 June 2014. Our network is the most integrated at global level and its vast resources allow us to help our clients benefit from every opportunity. In Romania, EY has been a leader on the professional services market since its set up in 1992. Our over 500 employees in Romania and Moldova provide seamless assurance, tax, transactions, and advisory services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. In 2014, EY Romania has affiliated to the only global competition dedicated to entrepreneurship, EY Entrepreneur Of The Year. The winner of the local edition represents Romania in the international finale that takes place every year in June in Monte Carlo. The World Entrepreneur Of The Year title is awarded at the international finale. For more information, please visit www.ey.com.