The first paper in Davies’ M&A risk series explores the strategic and operational complexities CEOs face when acquiring firms in the UK wealth management sector. It highlights how deal value degradation (DVD) often results from a failure to align the acquiring firm’s operating model with the client segments of the target firm.
A central theme is the mismatch between service models and client expectations. For example, the needs of younger, long-term investors differ significantly from those of older, near-retirement clients. If these differences aren’t accounted for during integration, firms risk inefficiencies, client dissatisfaction, and lost revenue.
To avoid DVD, Davies recommends that CEOs ask three critical questions before pursuing a deal:
- What is the target’s client base, and how will your operating model serve them?
- Will the acquisition extend your capabilities or improve efficiency?
- What is the true cost of integrating the target’s clients and systems?
The paper also emphasises the importance of conducting a “visioning and target state analysis” to assess how well the future organisation can serve its intended client segments. This exercise helps identify gaps in capability and ensures the post-deal model is fit for purpose.
A notable trend discussed is the rise of younger investors. Between 2015 and 2020, the number of defined contribution pension savers rose by 60%, with Millennials and Gen Z driving much of this growth. These cohorts expect digital-first, flexible services—posing a challenge for firms with legacy systems.
Ultimately, the paper argues that successful mergers and acquisitions in wealth management require more than financial alignment. They demand a deep understanding of client needs, operational readiness, and strategic clarity.
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