Identifying the Intangibles that Could Derail a Promising Merger

merger opportunity often looks great on paper. Each side has its unique strengths which, when combined, could produce a competitive asset management powerhouse.

But balance sheets, track records, compensation comparisons and valuations only tell part of the story. A transaction that looks awesome to those in the C-suite could be disastrous if it results in the loss of your most important assets – your key personnel.

In today’s cut-throat job market, talented employees who leave your firm will find new jobs quickly – most likely with your competitors. (A non-compete agreement may not be enforceable post merger.) And it may take you months or years to replace them.

That’s why it’s critical to assess not only the future financial state of the combined entity, but the potential negative impact of forcing one side or the other to adopt a “single way of doing things.”

During delicate negotiations it’s not always easy to bring up what could be cultural and workplace deal breakers. However, it’s vitally important that both sides consider how these issues could impact morale and potentially drive employees you can’t afford to lose out the door.

Here are a few “red flags” you may need to think about.

Location and working environment

Chances are unlikely that both you and your merger partner will maintain separate locations. This could create attrition risk if employees on the “relocating” side find the commute to the new office to be inconvenient or its location lacking in amenities.

Even if the winning location is ideal, employees who are used to having their own offices may be put out by having to adapt to a space where everyone except senior executives works in cubes or open floor plans.

Pandemic protocols

For many firms, the COVID-19 pandemic proved that employees could work at home and without sacrificing productivity and accountability. Some firms still allow people to work at home or on a hybrid schedule, while others are requiring everyone to return to the office. Some firms require all employees to be fully vaccinated, while others adopt a “don’t ask, don’t tell” mentality.

But what happens if your potential partner’s pandemic protocols don’t match yours? What if all of your employees are fully vaccinated while many employees within your potential partner’s firm – particularly those in senior management – refuse to get vaccinations and wear masks in common areas? What if key employees in your firm have the option of working at home but your partner’s CEO is adamant about seeing everyone at their desk every morning?

Healthcare plan differences

The spiraling cost of healthcare and the rising ascendancy of high-deductible healthcare plans that could cost employees thousands of dollars per year in out-of-pocket expenses on top of premiums is making healthcare a wedge issue.

If your firm has a traditional healthcare plan with minimal co-pays and deductibles and your potential partner has a high-deductible plan (or vice versa), which options will be available post merger? Can your new firm offer both types of plans and at the same relative costs? Will offering only a high-deductible plan drive valuable employees with medical conditions to a competitor offering less-expensive coverage?


Even in an industry that focuses on generating wealth and minimizing taxes, your employees’ political opinions are bound to fall across the entire spectrum. Those who are fiscally conservative may have progressive attitudes about social justice, climate change, corporate accountability and LGBTQ rights. Maybe you’ve worked hard to build tolerance of different viewpoints, or at least gently encourage employees to keep politics out of workplace discussions.

But what if one or more senior executives in your potential partner’s firm believes it’s their right and responsibility to freely express their fervent political or religious opinions to all within earshot? Or what if they make corporate contributions to PACs or charities that support their views and encourage their subordinates to do the same? Maybe those who disagree with these views have learned to keep their mouths shut, but will your employees tolerate this behavior?

Preserving your human capital

You can always replace AUM losses. But it’s incredibly difficult to replace top-notch portfolio managers, analysts, technology, operations, compliance and business development professionals. You might not think these cultural and workplace issues are all that important in the larger scheme of things. But they may be vitally important factors in determining whether your employees will embrace the new combined entity or reject it.

That’s why, when you’re conducting due diligence on any potential partner, it’s important to evaluate these and other intangible factors to assess their potential impact on employee retention. Once you’ve documented these issues, consider discussing them with your key personnel to figure out whether they’re willing to adapt to what could end up being a very different corporate culture or whether it’s likely to send them packing.

Related: 9 Easy Steps to Develop Your Strategic Plan in 30 Days