Asset Management Consolidation

“We decided that we really needed to pick our head up and make this a professional project of figuring out what's going on in the marketplace and whether we should do something. And it was important to us that we consider doing something only at a point of strength. Terry Sullivan at UBS carried us along like tiny babies who had literally never even thought about this stuff before, which was just what we needed. Cast a super wide net.”— Simon Krinsky

Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Explore strategic options only from position of strength

“The transaction itself is pretty unusual. Every one of us signed the same deal. There's earn-outs and that stuff is different. But as far as the transaction next week, every single owner, including our clients and Katie and John and the three of us, all the way down to the vice president who was promoted last year and got her first units are rolling the same percentage of our equity into Pathstone stock and receiving some cash. It is not solving a capital structure.”— Simon Krinsky and Tim McCusker

Leadership & Management · Business & Entrepreneurship

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Uniform deal terms plus retention bonuses balance fairness

“In most businesses I think if you're not growing, you're dying. The markets help. We invest well and performance helps. And clients generally spend less money than they make, but we need to be growing in absolute numbers of relationships to provide the growth opportunities for people. That's really, really hard to do. At some point along all of these journeys, it feels like you've reached scale and the next client you can add without adding people. That is categorically not the case.”— Simon Krinsky

Business & Entrepreneurship · Operations & Execution · Leadership & Management

DUR_ENDURING

Service firms never truly scale; each new client requires new people

“Having the external advisor validate that the financial terms were reasonable and at market just gave us some comfort. That was probably the longest part of our process, having our partners keep it confidential for what amounted to about seven months, which is a borderline miracle at the end of the day. We had different work streams of diligence. We had to do due diligence on Hightower as a business. We had to understand that strategic opportunity. We put a diligence work stream on that.”— Tim McCusker

Leadership & Management · Strategy & Decision Making

DUR_ENDURING

Structure diligence work streams; involve partners to build buy-in

“A really important part of our culture is having ownership in our business, being really well aligned, and then being able to pass that ownership on to the next generation. That was a deal killer if they wanted to go 100%. They fully understood our culture and the importance of that. If this was going to in any way disrupt our relationships with our existing clients, our ability to serve our clients, our ability to give objective advice to our clients, that would've taken things off the table.”— Tim McCusker

Leadership & Management · Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Ownership alignment is non-negotiable for culture preservation

“The customer wants more stuff from fewer people for less money. That to us has translated to a need to either create or provide services for clients that are more than what we used to do 20 years ago, which is pick great managers and put them together. We started a trust company. We've done a bunch of work on reporting and risk management, but there's always a thirst for more from the customer's perspective.”— Simon Krinsky

Business & Entrepreneurship · Strategy & Decision Making · Operations & Execution

DUR_ENDURING

Clients demand more services, fewer vendors, lower cost

“In our business model, money comes in, we pay people, money goes out. That's how it works. A balance sheet really, really matters. That was the first revelation. The second was that services as a business was really attractive to us. Scale has always been really, really challenging on the service front. It was really just finding what we thought was the best cultural fit, the best strategic fit.”— Simon Krinsky

Business & Entrepreneurship · Strategy & Decision Making

DUR_ENDURING

No balance sheet means no innovation; services business needs scale

“When any industry enters a mature phase, consolidation brings the benefits of economies of scale, product depth, and broader services to meet client demands. The tailwind that has helped all of us the last decade is the OCIO channel, and that has been a great source of growth. You look forward and think how are we going to grow in a business that continues to have fee pressure just like the investment management world?”— Tim McCusker

Strategy & Decision Making · Business & Entrepreneurship · Economics & Markets

DUR_ENDURING

Mature industries consolidate for scale; new channels enable growth

“When we went through this process, it was pretty important to us when we were getting close to the finish line with Pathstone that we'd be 100% owned by Pathstone. Now they're only maybe two and a half times bigger than we are so the piece which is very, very relevant of making sure that you have representation across your organization is super important.”— Simon Krinsky

Strategy & Decision Making · Leadership & Management

DUR_ENDURING

Full integration requires 100% same security for alignment

“There was a leak, still don't know who leaked it, but it said, Hall Capital hires UBS to explore a majority sale or something like that. It was a proper, proper fire drill starting with our employees. We had not shared the news mostly because we weren't certain that we were going to do anything. The first thing we had to do was tell all of our employees in 24 hours a little bit sequentially. And then we needed to reach out to all of our clients.”— Simon Krinsky

Leadership & Management

DUR_ENDURING

Leak forced early stakeholder communication; became advantage

“We've seen integrations not go well, have seen product pushed to them or an aggressive push to get them to go to OCIO even though upfront they were told that that wouldn't happen. I can totally understand that. That if you've been through something that was pretty disappointing for a relationship that's really important to your long-term investment success, you're going to be skeptical when we're telling you, hey, we think this is going to be great.”— Tim McCusker

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Past broken promises create earned skepticism; must prove out

“There were moments where one or two of us was at our breaking point and the second or third would step in and pull us back over the edge. That tension that exists between, it just feels like hills were all going to die on. And in our case, they were the tiniest of hills, but they were important to us. It was never about economics or titles or things. It was little details that really mattered. Having bankers that have been through this before was very, very helpful.”— Simon Krinsky

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Negotiation fatigue needs partner rotation; external advisors help

“I feel like we've been going through this journey all alone. It's so nice to have a buddy. When you read our leak, couldn't you have just called me? It's humbling. I hear the things that I'm saying and the things that I have a lot of conviction about in looking forward about this. And I hear managers having said that to me in the past. And I know the skepticism and the bullshit meter was running pretty high when I heard those things.”— Simon Krinsky and Tim McCusker

Psychology & Behavior · Leadership & Management

DUR_ENDURING

Living through M&A creates empathy for managers' promises

“The single criticism that keeps coming up is rarely well articulated. It's a version of their backed by private equity and that's bad. And you're going to have some kid looking over your shoulder and you're going to have to learn about KPIs. It's just easy to hate apparently, the private equity folks. Our experience with Lovell Minnick and Kelso, the private equity sponsors for Pathstone has been great. They're a much more traditional growth investors than PE. It is a growth story.”— Simon Krinsky

Psychology & Behavior · Business & Entrepreneurship

DUR_CONTEXTUAL

Visceral PE skepticism requires patient explanation of growth logic

“If you want to have a culture that has ambition, that wants to push things forward, that wants to do better for our clients and do better as employees, you've got to grow. You've got to continue to win in the marketplace. You've got to find new, innovative things to put into client portfolios. It's a cornerstone of DNA of professional service businesses generally, but advisory businesses in the investment world.”— Tim McCusker

Leadership & Management · Culture & Society · Business & Entrepreneurship

DUR_ENDURING

Ambitious culture requires growth; stagnation kills morale