Shock, horror, stop press:
Just another M&Anic Monday in mergers & acquisitions world.
. Kenyon Partners managing director Alan Kenyon predicts the next three to five years will see the largest transfer of ownership ever seen in the financial advice industry.
. CoreData sees intense competition from accountants, stockbrokers and super funds seeking to enter the planning industry, plus FOFA-induced exits from smaller practices.
But, there is evidence M&A is not necessarily a one-way street to success. Anyone who’s lived even a few decades can attest to the cyclical pattern of industry: growth, expansion, regulation, M&A, oligarchies, dissatisfaction, splintering, boutiques, growth, expansion … you get the picture.
The executive summary of this week’s missive is: don’t lose hope as all those around you are disappearing in another Merger Monday.
A message of optimism comes from none other than 2002 Nobel Prize winner for economics Daniel Kahneman.
His 500-page Thinking, Fast and Slow is ostensibly about cognitive speeds: system 1 being fast, intuitive and emotional; system 2 is slower, deliberate, logical.
In his perambulations around the mind, Kahneman – professor of psychology at Princeton University – wanders far and wide through loss aversion, happiness, risk framing, cognitive biases and overconfidence.
It’s this last behaviour that may deliver some light at the end of the tunnel for those stumbling around in M&A Land.
Kahneman observes that business leaders sometimes make “huge bets in expensive mergers and acquisitions, acting on the mistaken belief that they can manage the assets of another company better than its current owners do”.
Such acquisitions fail more often than they succeed, he notes, because the suits at the top of the acquiring firm “are simply less competent than they think they are”.
Another note of hope sounds almost immediately after this when he writes about outcomes in business. While Kahneman is writing about start-ups, his perceptions apply equally to established companies.
He writes that the “outcome of a start-up depends as much on the achievements of its competitors and on changes in the market as on its own efforts”.
That’s where the hope is: that it’s not just an inevitable and inexorable path to consolidation. Legislation will change, governments will come and go, competitors will do something really, really stupid, employees of the oligarchies will have truly great ideas that are spiked, clients will be lost in the bureaucracy of the behemoths.
And that’s when the cycle begins again. It’s the dissatisfaction with the big guys that wedges clients off to the small and hungry businesspeople who have not forgotten that customers want more than just another manic Monday.
IFA welcomes your contributions editorially – news, features, emails to the editor. This is your forum, your publication.
Please email the editor, Philippa Yelland, at philippa.yelland@morningstar.com.
