A financial services giant is born
Eight months after the proposed merger between Metropolitan and Momentum was announced, MMI Holdings’ group chief executive Nicolaas Kruger blew the “kudu horn” to announce the new entity’s JSE debut. FAnews spoke to Kruger and deputy chief executive Wilh
Metropolitan and Momentum are two of South Africa’s most respected financial services brands, raising the question: What influenced the decision to bring these businesses together?
“At a very high level you’re talking about two complementary businesses joining forces voluntarily – nobody was forced to do the deal,” says Kruger. “These businesses are much stronger together than in isolation. The new MMI Holdings will allow us to fast-track strategic plans and concentrate on growth and scale.”
Van Zyl agrees: “The merger brings many benefits from a shareholder perspective, such as a larger capital base, better local market ranking and liquid stock.
“From a customer perspective we’ve now got product depth across all the businesses we compete in – and we’ve got sufficient scale to be a ‘best-of-breed’ competitor in those markets. The retail investor or retail client will feel the benefit, too, thanks to a better segmented business.”
Creating synergy
The challenge was to improve the product offering without trampling on the key competitive advantages in the existing businesses.
“We decided to create six businesses, two retail business (Metropolitan and Momentum), plus an Asset Management, Employee Benefits, International and Health business. The general philosophy is to create one business under one leadership for each market segment. And we’ll continue to make products available through the most appropriate channel – aligning product with channel and client. The broker distribution channel remains the most effective in terms of product availability across all segments,” says van Zyl.
Business as usual
Kruger adds that the most important message to intermediaries is: “Business as usual”. “Clients and intermediaries will hardly notice the change. We’ve taken a decision not to allow the merger to disrupt organic growth initiatives in any way. Fortunately the distribution channels at our retail divisions are extremely complementary. I expect most of the integration focus will be on back office and management structure – things which will not be immediately apparent to the outside world.
“In the short term, and even medium term, there’s no plan to change the distribution focus in any way. Brokers already have a full product range and the model to deliver – all of this remains in place. Metropolitan, on the retail side, will continue to work through agents.”
Increased focus on intermediaries
“We are going to keep the two client-facing brands, and clients and intermediaries will continue to interact with these brands as before. Over time we would like to be a stronger competitor under both brands, which will manifest in a variety of ways. But the real change will happen within the business. Momentum is really an intermediary brand – and I expect that will remain unchanged. If anything, the new structure allows us to focus even more relentlessly on intermediaries going forward. The intermediary can expect ease of administration, a more comprehensive product range and price competitiveness,” says Kruger.
Why, then, were intermediaries not consulted more widely during the early stages of the negotiations? “It would have been impossible, given the confidentiality at that point of time, to reach past a very tightly controlled internal group,” says van Zyl. “We could not have canvassed broker lobby groups, or any other stakeholder for that matter. Even so, a lot of distribution thinking actually came through in the way the business units were modelled. We most definitely remain aligned to the broker distribution model.”
Broker buy-in
“Up until the first announcement in March 2010, only a small group of people knew about the merger,” says Kruger. “The news really took the market entirely by surprise! Since the announcement we’ve had a lot of interaction with financial intermediaries and had the opportunity to talk them through the rationale behind the transaction. The feedback we’ve had from them has been very positive. We had to go out of our way to demonstrate we’re still focusing on personal service. At the end of the day this business is about three things: relationships, service delivery and product! Provided we demonstrate value add in each of these categories, we’ll receive complete buy-in.”
Distribution model
Kruger and van Zyl say the distribution models that have served the group’s key retail operations so well will remain in force.
Van Zyl believes that broker distribution remains an absolute cornerstone of Momentum. “MMI will benefit from the company’s fantastic legacy. They really locked distribution down – by doing it well and earning respect. Going forward we’ll want to emulate this – because this business is about aligning the client, channel and product as efficiently as possible,” he says.
What clients should know
What should intermediaries be saying to their clients? “Change takes different forms for different people, but I think the strong relationships with the Metropolitan and Momentum retail brands will transition clients through that change,” says van Zyl. “The merged entity has greater product depth, more reach, more capacity – and we’re going to do things more efficiently through the integration process. I expect clients will continue to find their interaction with Metropolitan and Momentum a very positive experience.”
“Everyone immediately benefits from being part of a stronger financial services organisation, with more muscle and a greater ability to service clients. There will be no immediate changes in the short term,” says Kruger. He also stressed that existing products and policies remained in force.
Challenges ahead
One of the challenges will be to bed down separate cultures without diluting the unique “edge” that separates each division from its peers.
“We’ve got different histories and different - but complementary - cultures,” observes Kruger. “We’ll spend a lot of time as the new MMI Exco on discovering consistent and common values, at all times considering the differences within businesses segments. You don’t expect the same culture in a health administrator and an asset management division, for example. The process won’t play out overnight and it’s going to take a huge effort to align the businesses in this way.”
Van Zyl agrees. “In Metropolitan we’ve always had business units displaying different cultural dynamics – and the same goes for Momentum. That’s because each business serves a market, attracts certain skills and has its own legacy and history. The market, the resource pool you recruit from and the markets you serve actually drive the cultural dynamics in your businesses. We want Metropolitan and Momentum to retain their uniqueness – because there’s a risk in making everything so common that you end up not being unique to any market. The challenge is to celebrate our diversity, but find that golden thread that actually brings us together!”
Business of substance
Change is inevitable in a merger of this size. But there are a number of values and abilities the new executives would like to see carried through to MMI Holdings. “Most of the change will take place internally around systems and structures. Our distribution channel focus will still be the same six months from now – and I’d like to see the way in which we deliver the Momentum and Metropolitan product remain unchanged. I expect Momentum’s relentless focus on financial advice through intermediaries will, if anything, be stronger six months from now,” says Kruger.
Van Zyl adds: “At MMI Holdings our clients take the form of intermediaries or of people who support us through product, in both the retail and institutional segments. Over time we’ve developed an absolute passion for serving our clients and I know this will be priority number one at both retail divisions going forward.”
“I also hope that the legacy of the Metropolitan and Momentum brands remain strong because they’ve got heritage earned over time in specific market segments. And lastly we’ll continue to build on being a strong financial services institution. We’re a business of substance – and that we’ll keep.”
