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    It seems like I can’t open LinkedIn without seeing another announcement about an acquisition in the retirement plan industry. One Digital, Ascensus, and TRA are as hungry as ever but even as you slide down the size spectrum, medium and small-sized firms are using inorganic growth as the path to scale. The timing is probably unsurprising to most. With the industry being born with the passage of ERISA in 1974, those previously young professionals who started TPA firms are now eligible to withdraw from their own retirement funds and looking for an exit strategy. So, as this consolidation storm continues to build, it is time for owners to consider what they can do to maximize their valuations so that they can easily integrate them into the purchaser’s portfolio.

    The retirement space is not unique, many industries are experiencing consolidation (healthcare, investment firms, media, etc.) because as markets mature, consolidation is an important part of the evolution. Using the consolidation curve as defined by Harvard Business Journal, I would estimate that the TPA industry is between phases 1 and 2 judging by the market share that the top three companies have. There are over 4000 TPA firms in the U.S. and the market is still highly fragmented and regionalized. But, with the early stages of market consolidation comes more mature problems, like can you achieve the stakeholder synergies that every transaction promises? Selfishly, I believe that implementing the industry’s leading workflow software is a win-win for both parties, so let’s look at technology and other areas to consider before a transaction.

    Integrate systems and culture to achieve operational efficiencies

    Technology is critical to integration; however, the term technology is a bit misleading because the type of technology you integrate matters. The first technology that is usually consolidated after a transaction is the accounting and billing, followed by the sales and marketing with workflow and project management, the largest, usually reserved for the last step. I have heard from much larger TPAs that when evaluating firms to acquire, PensionPro users are more favorably viewed by the acquiring firm from both a valuation and culture standpoint. With workflow being the hardest, most expensive and time-consuming to implement, there is great value in being on the same operational platform.

    Retention of star employees

    Any transaction will likely cause stress and anxiety for both the executive team and the workforce. The pure uncertainty of new employers causes each employee to evaluate their future with the company. Is it a threat or is it an opportunity? We all know that at the heart of the TPA’s work are relationships. You have probably witnessed the scenario whereby a small company gets acquired, star employees roll-off, start their own firm and take the relationships with them – there are some legal issues but it’s a story as old as time. When considering a transaction, be sure that you conduct your own diligence regarding the experience of companies that have already been acquired. A simple google and LinkedIn search can go a long way to determining who would make great references for this conversation.

    Another question to consider is “does the next generation of retirement plan professionals want to work for large corporations?” I believe that if large employers can keep pace with the flexibility of the remote workforce but add the stability of a large company, this will make the larger firms very attractive to the top industry talent. The pandemic has gone a long way to waking up the sleepy retirement planning community to the opportunities of remote employees and servicing clients from afar.

    So if you are reading this and even possibly considering a transaction, please take the necessary steps to get your operational systems like PensionPro in order. Your future employer will thank you later.

    If you would like to see PensionPro in action, click here.