4 Things to Consider During Bank Mergers and Acquisitions

November 21, 2018 Rollie Tillman

4 Things To Consider During Bank Mergers and Acquisitions

If you’ve been in banking long enough, you may be familiar with the way some mergers and acquisitions start off -- conversations are had during dinner at a steakhouse or on the golf course, and a decision is made to bring the two companies together. Bullet points are jotted down on the back of an envelope to help sell the M&A to both boards of directors. 

And then the "fun" starts. 

But instead, there is often pain because no defined strategy is put into place or clear communication is had between those who need to accomplish those bullet points. 

What ensues is disarray and discomfort and lots of unhappy people.

It doesn’t have to be this way. I’ve been through close to 50 mergers and acquisitions and I’ve discovered four key things that need to be addressed to make the merged organization stronger and able to move forward. 

Dig into the “how” sooner rather than later

Usually, synergies between two companies are the compelling reason to merge. There are often plenty of opportunities to save money by merging back offices, cutting expenses, and creating efficiencies to make the numbers work.

And the board may approve this, because it sounds good on paper. But I’ve found that often there are no clearly defined tactics to support this strategy and it is instead left to the troops to try to figure out.

When merging two companies, you need to move toward a strategy quickly. The reality is that banking is a service industry - it’s a people business. And when you're trying to achieve these efficiencies or savings, you have to remember it impacts people’s lives and they need to know where they’re going, what the direction is, and what’s trying to be accomplished.

Keep employees motivated with appropriate communication

To execute your strategy successfully, you need to communicate and engage with your staff. If there are clear strategies and tactics, people have something to execute on. It also helps your most critical performers understand where they stand. 

If you communicate openly with your team, people who are passionate about what they’ve built will work very hard through that transaction to make sure they have left it as good as they found it. By taking this approach, your top performers will feel confident in their abilities and know they have opportunities in the new institution. 

Be wary of the merger of equals

It’s easy for banks of equal asset size to think of their merger as one of true equals. Perhaps they agree to the merger to streamline back-office expenses or broaden their collective reach. But the reality is that these are some of the trickiest mergers and acquisitions to navigate. 

Why? Because of culture. 

You have to think upfront about which institution’s culture will be dominant in the newly merged institution. There could be huge synergies from the start, and both cultures believe and do things in a similar nature leading to a tremendous amount of energy. Or it may be that the cultures have been successful pointed in two different directions and putting them together could be disastrous. 

Because of this, bank leaders may need to invest more time in making a merger of equals work because a great deal of focus should be on company culture issues. Otherwise, there is a risk of the merger failing. 

Understand what best-in-breed solutions to keep from the acquired company 

During a merger, it’s extremely important to address the technologies being used by the two companies.

And technology falls into two buckets. 

The heart of the bank includes the core processing systems, like checking account and general ledger systems. Historically, changes to those core systems have a lot of customer impact and implications in terms of things like changing account numbers and regulatory hello goodbye letters. The acquiring bank will, out of necessity, merge the acquired bank into their systems because you can't have, for lack of better terms, “the tail wag the dog.”

The other bucket is what we refer to as the brain of the bank, which are cloud-based services that include CRMs, pricing and profitability solutions, loan origination systems and other flexible, best-in-breed, software-as-a-service solutions that don’t impact the core processes. 

Acquiring banks have a lot more flexibility in picking and choosing which of those solutions should be used by the merged institution. I’m seeing more acquiring banks recognize that the brain of the bank they are acquiring would do well in their own technology ecosystem. The key is that the solution doesn’t have a negative impact on the core processing system, or involve a complex integration. 

A bank that has focused on the “brain” is likely one worth acquiring, as they’re a step ahead in innovation. And their success may have been propelled by a solution your institution could adapt.


For the full conversation between Rollie Tillman and Jim Young, check out their Purposeful Banker podcast episode on mergers and acquisitions.


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