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In a Tech Merger, Don't Panic

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The first quarter of 2015 was busy for technology companies that serve advisors, as many were acquired or sold a significant portion of their company. The most notable deals included SS&C Technologies’ purchase of Advent, which includes Black Diamond; eMoney being acquired by Fidelity; Envestnet acquiring Upside; and Northstar, which owns Orion Advisor Services, selling a majority interest in their company to TA Associates.

Whenever these types of transactions occur, I always receive a number of emails and phone calls from advisors asking about the deals: Should they take any action? Will their costs change? What does this mean for the products they’re using? These are all pertinent questions, and although we do not know all the details, nor can we predict the future, there are possible implications to advisors’ firms.

My first recommendation to advisors after a deal is announced is to be patient. You should expect to hear a number of great reasons why the deal is good for their users. That may not be the case, though, so listen to what they say, then wait—the “proof is in the pudding,” as the saying goes.

We do see companies continue their entrepreneurial development initiatives after being acquired by larger entities, like Advent’s purchase of Black Diamond in 2011 and Envestnet’s acquisition of Tamarac a year later. The technology offerings of both companies continue to be very competitive and attractive, and the deals they made seem to have enhanced the companies.

Pay attention to who is ultimately in charge of the company after the deal closes. This is the area that makes advisors most nervous. Given the relationship aspect of our profession, we greatly value the people running the companies that support our firms. Often, the existing management team remains in place, but it won’t take long for you to figure out if they still have the same level of control and authority. If new leadership is introduced, this is not necessarily a negative. However, it will likely mean that future changes are in order as the new leaders take charge and begin to implement their ideas.

The development priorities and schedule will also provide insight into where the company may be headed under the new ownership. Generally speaking, technology companies are always working on a long list of feature requests and enhancements. What you should be watching for is whether the delivery schedule changes and, more specifically, does it take longer for each new release? More development resources are frequently a talking point for why a company decided to do a transaction in the first place. Hopefully, this becomes a realized goal for the companies you work with.

The more critical a technology solution is to your firm, the more likely it is that you will be anxious regarding any ownership change. Years ago, ownership changes at technology companies were a big deal for advisors because the options were fairly limited. Our “cottage” profession simply didn’t offer the number of choices that we have today. Following a change in owners, make sure your firm is thinking about a replacement. I’m not suggesting you change solutions just because your existing provider has announced an ownership change. However, researching potential replacements will identify important first steps you might take if issues arise after a merger.

When all is said and done, we shouldn’t be surprised by ownership changes at these technology companies. Consistent with other fast-growing industries, ownership transactions go with the business environment. There are always a number of reasons why a deal is done. After all, we are talking about technology companies that face fierce competition and a light-speed-changing landscape. It’s not hard to understand that sometimes the best move for a technology company is an ownership transaction.

Watch Where the New Owner Adds Resources

No surprise, but it takes a lot of time and work to complete an ownership transaction. It starts well before the deal is announced and continues through the transaction’s closing. Then it is time for the real work to take priority, i.e., changes to the company’s products and solutions. This is when you get great insight into where things may be headed. Does the new owner add more money and staff in development? In service? Marketing? Sales? New markets? Watch where and how they add resources, and you will know what is important to the new entity.

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