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Paul Allen
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The Long Road to Integration

As Lehman Bothers' acquisition of Neuberger Berman illustrates, post-merger integration is a hard journey.

Times are tough on Wall Street - regulators are coming down hard, customers are evermore demanding and the halcyon days of stellar returns are a distant memory. Size and/or specialization seem the surest path to survival.

So, many firms opt for mergers. The rationale is clear - broaden and deepen customer reach, increase revenues and build more financial muscle. But once firms have combined operations, getting the most out of their potential strength is not as easy as it first appeared.

"Conceptually, when you think about two firms merging - or one firm acquiring another - you think this should be pretty straightforward," says Gavin Little-Gill, director with Needham, Mass.-based consulting firm TowerGroup. "We come in, we rationalize the technology and move to a single platform," he describes. "But what you ... find is that, in getting two firms to look at migrating to a single solution, just overcoming the political issues and people's willingness to change are significant barriers."

Often, the instinct may be to tread carefully for fear of antagonizing already sensitive feelings. But, post-acquisition, if firms are to truly join forces, they have to break through the territorial mentalities and get staff on the same team to work toward the good of the enterprise, asserts Larry Cohn, managing director and global CIO for the investment management division of New York-based Lehman Brothers. "One of the things I think people take too lightly is the human aspect of integration," he says.

Lehman's investment management division is comprised of three areas - private investment management, asset management and private equity - created from a combination of the firm's existing businesses and the acquisitions of Lincoln Capital Management in 2002, and The Crossroads Group and Neuberger Berman in 2003. An early priority for Cohn in bringing the different entities together under the Lehman banner was to address the human resources issues. "In every merger or acquisition, people are going to be nervous, so deal with that head on," he says.

Then there is the nitty-gritty of where and how to start bringing two or more separate operating environments into one shop. In reality, rather than moving onto single applications, merging firms often go for the biggest (and, typically, most obvious) win first - aggregating procurement relationships with common vendors, particularly data vendors, according to TowerGroup's Little-Gill. The first step, then, is to compare and contrast what each has been paying, take the better deal, subtract some pieces and, because now the combined firm is bringing more desktops to the table, gain some cost savings by renegotiating contracts, he says.

Natural Selection

The second step is to take advantage of the natural life cycle of technology. So rather than rip something out that is working today or force disparate systems onto a single platform, firms often will wait until functionality dictates a technology purchase - for a new order management system or portfolio accounting system, for example - and then look at it more holistically, Little-Gill asserts. "That's where you stop and start looking at creating process around these things, and you look at synergies - opportunities to use a common platform across multiple subsidiaries," he says.

Of course, some firms are more aggressive than others in the pace and extent of their consolidation programs. For example, Lehman, while working on integrating its current investment management businesses, has been keeping an eye to the future by seeking to move from a silo-based mentality to a functional organizational approach, according to the firm's Cohn. "As we're doing this, we are trying to keep our eyes open and say, 'There are going to be other acquisitions - let's not just think about Neuberger, but how we would do this the next time, too,'" he relates.

Of One Mind

Initially, Cohn adds, much of the emphasis was on bringing Neuberger into Lehman's infrastructure environment. The major steps included migrating the business into Lehman's data centers - one of Neuberger's two data centers has been shut down and the second is scheduled to be closed soon - and integrating e-mail, file sharing and networks. "It is a work in progress," says Cohn. "But on the whole, the transition on the infrastructure side is such that the individuals are now within the Lehman world."

Lehman also has been looking at rationalizing the raft of applications it has inherited to leverage prospective synergies, according to Cohn. For example, both Neuberger and Lehman contracted ADP (Roseland, N.J.) for back-office functions. Therefore, the firm undertook a project, completed in mid-2004, to migrate Neuberger to Lehman's books and records, Cohn relates. The firm also has consolidated name and address systems into one master account system that feeds downstream applications, moved to a unified pricing system and is transitioning to Lehman's intranet, he adds.

Lehman also consolidated the firms' trading technologies. "That was something we wanted to integrate pretty quickly, to have the synergies from being able to shut down the Neuberger Berman floor brokerage operation, leverage Lehman's trading platform and combine the technologies so the front ends the Neuberger Berman money managers used stayed intact - so it didn't affect the way they do business - but couple the systems behind the scenes," explains Cohn. The upshot is cost savings, but done in a way that would not adversely impact the business, he notes.

But there still is much work to be done, Cohn stresses. Though Lehman completed its acquisition of Neuberger in 2003, the firm has a slew of projects planned to complete the integration of the two businesses, including an initiative to bring Neuberger's and Lehman's separate trust companies together.

Whereas Lehman previously outsourced its trust accounting, Neuberger used a proprietary system. Rather than consolidate on one or the other, however, the firm has signed up to use the SunGard AddVantage system, according to Cohn. All trust accounts now are being converted onto SunGard's platform, with full integration scheduled for the second quarter of 2006.

Another project that kicked off recently is the elimination of Neuberger's proprietary billing system. Lehman plans to move Neuberger's billing onto Lehman's system, Summit, N.J.-based Interactive Technologies' Advantage Fee System, says Cohn. The project is scheduled for completion in the first quarter of next year. The firm also is about to make a decision on a consolidated customer relationship management platform for the division, and is assessing how to integrate its client and performance reporting environment.

And back-office functions aren't the only areas that need to be integrated, Cohn notes. Perhaps more important, he suggests, are customer-facing technologies. Lehman recently began a project to harmonize the online experience for the combined firm's clients, so as to present them with a singular look and feel. The firm plans to overhaul its online offerings, as well, to provide customers with a more-dynamic experience than in the past, he explains. Lehman will begin to roll out enhancements next year.

Building for the Future

The seemingly endless task of systems integration is not lost on Lehman, Cohn points out. In fact, the firm is undertaking another initiative with future acquisitions in mind. Lehman's Data Information Architecture initiative, which will run through mid-2006, seeks to create a technical layer for the firm's infrastructure. The goal is to develop an architecture that will be independent of the portfolio systems or databases being used. It will support top-level applications and provide access to the data to enable them to report it in a similar fashion, independent of the underlying systems, describes Cohn. In this way, when Lehman makes any subsequent acquisitions, it will be able to bring that company - and its array of different systems - into the fold faster and more easily, he says.

The initiative features a reporting data store, which will receive data from the underlying systems, normalize it and then act as a data feeder to all the downstream systems through a data access layer. Historical information can remain in the underlying systems and then be accessed when required - for example, in generating a client performance report - rather than having to be centrally captured. The project's first deliverable rolled out in June, but the work probably will go on for another year to get the architecture fully integrated with all the relevant systems, according to Cohn. Indeed, the rest of this year and next year will be a key phase in the integration of the firm's major systems, according to Cohn. "Then, I would say 2007 would be filling it out," he says.


ING Investment Management Americas, the investment arm of Amsterdam-based ING Group, meanwhile, was formed about four years ago through a series of acquisitions involving predominantly insurance operations with investment advisory subsidiaries, including Aeltus Investment Management, which was part of the acquisition of Aetna; ReliaStar Financial Corp.'s money manager Pilgrim Investments; and Furman Selz Asset Management, part of the Furman Selz organization. "We started with five disconnected, autonomous units, using various models - some were hosted from their former parent companies, some were running it themselves, some were outsourced," says J. Scott Fox, vice chairman and COO of ING Investment Management Americas.

According to Fox, the first decision that needed to be made was whether to run the five legacy businesses as separately branded organizations under a loose confederation, or move to a single branding and service model. "We've elected to go with the one-company model," he says. "In that regard, the decision to go to one technology platform fits hand in glove with that overall business strategy."

The technology integration effort - which is focusing on the firm's North American operations - kicked off in September 2002. "Our plan was to do the entire infrastructure and a lot of ... the applications and architecture development process within a three-year period," Fox relates. "From that perspective, it is mission accomplished."

The first priority, Fox notes, was the infrastructure, with a focus on cost containment and internal control. As a result, the five silos now have been combined into a consolidated infrastructure using one help desk and one primary data center with a backup intranet, all tied in with disaster recovery and business continuity, he says. "We looked at outsourcing it, but ultimately went to our own storage area network configuration, both on our primary and secondary data centers," Fox explains.

Think Globally

Another major consideration, according to Fox, was application deployments that are germane to specific business drivers. Though ING's investment management divisions in the Americas, Europe and Asia-Pacific predominantly run autonomously, the examination of application usage across the organization was performed in partnership with ING Investment Management Americas' sister organizations around the globe. The autonomous businesses collaborate where the dictates of the regional businesses allow, explains Fox. "If we can make a decision to go with a common platform, we can get internal leverage as well as vendor leverage," he says.

For example, in the trading and portfolio modeling area, the investment manager relies on Charles River Development. "The U.S. has assumed the lead relationship, but we have configured a global deal where our pricing is conducive to expanding the use of their system," says Fox. In this way, if the worldwide investment management group chose to change its business model at some future date so as to run off one global desk, it would then have the technology in place, he explains. Similarly, on the sales, prospecting and client services side, the firm has chosen to migrate some of its European and Asia-Pacific affiliates to Saratoga Systems' iAvenue platform, which has been in use at ING's U.S. operations.

Acknowledging the long-term nature of complex integration projects, ING Investment Management Americas currently is evaluating its next three-year plan, according to Fox. It will address the firm's business support platform, he relates. At present, ING Investment Management Americas still runs three primary support systems - in New York, Atlanta and Hartford, Conn. - that are linked virtually.

The back office, according to Fox, will be the first area to be consolidated. "We're guilty of still having much of the legacy process, and so our shift in priority is going to be on bringing this along so we are in a true straight-through processing environment, with more common databases," he says.

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