05 Apr 2019

Rationalizing Service Providers During a Merger

Securities Services
Service providers should be positioned to act as key partners to executive leadership and operational teams throughout a consolidation.


A merger often presents the opportunity to evaluate new and existing service providers against the firm’s future operating model. This could lead to consolidation or the creation of a multi-provider best of breed approach. Either way, once the decisions are made, service providers can play an invaluable role in helping firms manage the merger related operational projects.

Choose Service Providers for the New Organization

As the merging firms evaluate their respective partners, they may use the opportunity to consolidate to fewer, more strategic relationships. Incumbent providers may not always be best-positioned to service the newly-merged firm, especially when asset managers of different scale are joining or when one firm has a niche value proposition through geography, asset class, or investment strategy. New due diligence efforts and risk assessments are needed to evaluate the value proposition from the perspective of the consolidated organization. Firms with local experts across geographies will have a strong foundation from which to build potential future customization. It also likely indicates that a service provider will have experience in navigating multiple cross-border issues including sourcing and moving data across jurisdictions, understanding regulatory reporting requirements, servicing different types of clients and asset classes, and managing connectivity with multiple operating platforms.

Leverage Technology, Resources, and Expertise

Firms can mitigate a drag on their resources and time if they are able to appropriately leverage the supporting technology, resources, and transition expertise their providers can offer. With early communication, many external partners can act as a coordination layer and transition manager, allowing asset managers to focus on their core value proposition and other key strategic decision points.

Depending on the scale of the deal, engagement with these partners can start up to six months prior to public announcements. Firms should prepare to assess the entirety of their vendor and service provider complement, reaching out to technology, data and operations vendors, custodians and asset service providers, consultants, accountants, and lawyers as they begin to consolidate operations.

Consolidating front, middle, and back office operational processes is cumbersome for asset managers and today, service partners can do much of the heavy lifting. Firms can mitigate a drag on their resources and time by appropriately leveraging the supporting technology, resources, and transition expertise their providers offer.
Pervaiz Panjwani, Head of EMEA Securities Services, Citi
Pervaiz PanjwaniHead of EMEA Custody and Fund Services, Citi

Managing the Complexity

Transitioning between service providers throughout the consolidation process can be highly complex. Establishing governance models can manage the transition between the providers; this includes transfer timetables and roadmaps, service level agreements, defined owners with roles and responsibilities, and audit trails. While all providers expend significant efforts during the transition, the incoming providers mostly lead the migration and implementation and rely heavily on the outgoing providers for the handover. Outgoing providers often have to absorb the resources expended for investigations, details of processes, and other client-specific dynamics. Further, contractual obligations often prevent outgoing providers from directly providing information to incoming providers, meaning the firm or a third party may need to be prepared to facilitate the exchange.

Key Questions to Consider

A newly-merged firm’s service provider footprint plays a big part in establishing its new operating model and future growth plans. Here are three key issues executive leadership should consider when selecting servicing partners:

  1. How do service providers align with our existing and future footprint?
  2. How will we structure service-level agreements to address vendor on-boarding and off-boarding complexities?
  3. Which providers have transition teams and technology that can share the burden of operational transitions?
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