Lessons Learned From Over 50 Mergers and Acquisitions [Podcast]

October 16, 2017 Maria Abbe

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Rollie Tillman, Managing Director here at PrecisionLender, shares what he's learned from being part of over 50 bank mergers and acquisitions. He pulls from his vast experience sharing pain points he's encountered, how to make the transition as smooth as possible for employees, and why companies merge to begin with. 

   

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Podcast Transcript

Jim Young: Hi and welcome to the purposeful banker, the podcast brought to you by Precision Lender where we discuss the big topics on the minds of today's best bankers. I'm your host Jim Young, Director of communications at Precision Lender, and I'm joined today by Precision Lender's Managing Director of Client Services Rollie Tillman. Today we are going to talk about the M&A trend in banking that continues to roll on at a rapid pace, in fact the latest version of S&Ls bank M&A deal tracker shows that 2017 M&A thus far is outpacing the same period for 2016.
 
So Rollie, you've been a guest on the podcast before and while I'm confident that all of our listeners remember that particular episode fondly just for the few that might've somehow missed it can you share what your career background was before you came to Precision Lender.
 
Rollie Tillman: Yes thank you Jim. I have spent 27 years in banking...banks of various sizes ranging from community banks with 35 branches to international world players. Within those institutions I've had many roles including customer facing, commercial lending, so been in the trenches in that regard, but spent a large amount of time in head office jobs spanning from risk management to marketing including strategic planning and mergers and acquisition group.
 
Jim Young: So just a little background, inside baseball, for the listener's here. I didn't take a look at Rollie's CV before asking about this podcast, so I missed the M&A part of it. So I said "Hey Rollie you got any experience at all...have you lived through any M&A activity when you were in banking" and so what was your answer to me, if you remember about?
 
Rollie Tillman: Yeah off-the-cuff I said somewhere around 50 transactions that I've been involved in and then when I actually counted them up I think that's about accurate Jim. It's a little bit imbalanced there as I added them all up I think I did about 48 deals where I was on the acquiring side, the bank that was acquiring another institution, and there were two where I was on the other side of the table both those were unique in nature and both of those I continued to work for the company for quite some time in varying leadership roles, so I kind of got to see it through both sets of lenses.
 
Jim Young: Yeah my response was when you wrote 50...wait I was like are you joking here...he's like no actually it really is about 50. So Rollie's obviously, as he said, has seen it through multiple lenses. He's got some stories to tell and those are some of the stories we'll hopefully tell on the podcast but will keep names out to protect the innocent in this. In particular do you have an M&A day story that sort of sticks with you, that you still have the scars from basically?
 
Rollie Tillman: Yeah and as you said we'll protect the names of the innocent or guilty or whatever the case may be. I will make some broad generalizations because I have been involved in a number of them. I would say that the most challenging integrations... An integration's what occurs after the merger and acquisition deal is struck, the CEO's and the boards get together and they decide their going to put their companies together and then they go about the business of doing that, which is referred to as the integration, and so I think the most painful experiences that can occur is when that deal is struck on the golf course or at the steakhouse or wherever it happens.
 
Generally, some bullet points will be put down on the back of an envelope that'll be flushed out a bit further and that might be sold to both boards of directors, or whatever controls each of those institutions, and then the pain comes when there's not a defined strategy and plan to accomplish those bullet points. Either that or there's not a clear communication to those that have to execute it. And what ensues is disarray and discomfort and people are unhappy and don't know which direction their going in. As you look back a year, two years down the road, people are questioning how did we accomplish or not accomplish those goals and it's just...without that clear communication on the front side of the transaction so that all the troops know what they are doing it can have some pretty bad outcomes.
 
Jim Young: Yeah so in a situation where you can, on paper, make an easy...not easy case...but you can make a compelling case for why we should merge, that's a much different thing than how we're going to merge. Is that basically somewhere where the gap occurs a lot of times?
 
Rollie Tillman: That's right I think that companies come together for any myriad of reasons. You hear a lot of press today about the cost of compliance or the cost of the regulatory oversight but frankly there many different reasons that companies become married, put themselves together, but for whatever the reason there needs to be clearly defined strategies and tactics of how you're going to accomplish the goals.
 
I'll throw out something. Usually efficiencies or synergies between two companies is a compelling reason to merge two companies so that's a nice way of saying expense cutting, merge the backrooms together, things of that nature. The two CEO's may decide that they're going to achieve at 25% efficiency because that's what makes the numbers work. The board may approve that and all that sounds good on paper but there's no clearly defined tactics to support that strategy and then it's left to the troops to try to figure it out. The reality is banking is a service type industry, its people, and so when you're trying to achieve these 25% efficiencies or savings the reality is that it impacts people's lives and to be fair, folks need to know where they're going... what the direction is, what's trying to be accomplished.
 
Jim Young: So among those 50 or so mergers were there some that had it mapped out well, that went smoothly?
 
Rollie Tillman: Absolutely Jim, and we kind of started off with the negative there but I think the converse of that as you would imagine is when there are clearly defined strategies. There's a vision for what that company will look like as an outcome of the merger and acquisition transaction and then their tactics defined to support that, and the troops know where they're going and they can execute on it... doesn't change the fact that there will likely be some cost savings and some integrations and you never want to lose sight of the mind of the impact of the people. But at the same token, if there's a clear vision strategy and tactics people can execute on that they know, where you're going as a company, and the clearly defined plan helps move things along more quickly to get where you're trying to go as a unified company.
 
Jim Young: And even if...I mean we mention the word efficiencies with people. Sometimes what we're talking about here is cutting headcount in these situations even if that's gonna happen at least if you got it...if people can see it coming, know it's coming it's never easy but at least it makes it...it makes it easier I guess or less difficult. If you know my department is going to be cut and this is why it's going to be cut and it's time for me to start looking elsewhere.
 
Rollie Tillman: Yes absolutely and that takes a bit of the emotion out, I don't want to discount that because it's an emotional transition but at the same token, I've seen folks who understand that from the get-go that are passionate about whatever it is the built and the job they come to work to do every day and they'll work very hard through that transaction to make sure that they left it as good as they found it and if they have that clear path they kind of put behind them the emotion of what's occurred and they'll leave it in as good a condition as they found it or better and then folks who approach it in that way often end up with opportunities at other banks.
 
Jim Young: So you touched on this a fair amount but let's sort of play a hypothetical here where you're no longer a consultant within Precision Lender but you're a banking M&A consultant you've given us sort of the high-level here's how you should think about it, not just about why you should but how you're gonna do it, what other advice would you give bank execs that are looking to acquire a bank and then if you want to go ahead and put on the other side if you are consulting with a bank that's going to be acquired what would you tell them?
 
Rollie Tillman: Some of the same things we've talked about Jim. I would say be thoughtful in what you're trying to accomplish in putting two banks together. I had a CEO once who said that banks are rarely bought their sold, so it's a two to tango type dynamic there so I think the folks who come together in the board rooms and at the executive level should be clear of what they're trying to accomplish what is the vision and then document strategies and tactics that they can communicate out of the forces so that there's a clear line of sight of where everyone's marching toward, I think that's very important.
 
I think also a theme previously mentioned is to be realistic in the salient points that justify doing the deal. If it's 25% savings, how are you going to achieve that? But also recognize that each of those institutions likely did some things very well and I think entering into it was somewhat of an open mind of taking the best-of-breed or best-of-classes, putting it together and building an organization that has long-term franchise value is something that's often overlooked.
 
Often times the acquiring bank particularly if there's disparity in the size of the two institutions becomes more of an assimilation type transaction. I think being open-minded to assess the strengths of each organization, both from a people process and technology perspective, and identifying which of those at each institution has driven success and putting that together in the new institution can have long-lasting effect.
 
Jim Young: You actually pulled a Dallas Wellson on here and answered one of my questions before I could ask it, he does that all the time on the podcast.
 
I was curious about that from a technology standpoint in particular is how often you run across..I guess I don't know if you can put a percentage on it but maybe a generalization...but how often does a acquiring bank come in and  take a look at what the selling bank is doing and say that's pretty cool we should actually do that instead of what we're doing. I gotta imagine the bias is we're the ones acquiring so were the ones that kinda know what were doing, is that fair?
 
Rollie Tillman: I think so and particularly in my experience I've got a bit of gray hair so I have done nearly, I've been involved in nearly 50 deals and that goes back a couple decades. I would say that historically, at Precision Leander we kinda split the technology ecosystem into two human-like descriptions, we call it the brain of the bank and the heart of the bank. Just very quickly, the heart of the bank would be all the bank core processing systems like their checking account system and their general ledger. Historically those core systems will have a lot of customer impact and implications in terms of mergers so you're changing account numbers, there's regulatory hello goodbye letters, all these things you have to do when you merge systems. So the assimilating bank typically out of necessity will take on the bank that is being acquired and it's merge into their systems because you can't have the tail wag the dog.
 
The other side of that dynamic we refer to as the brain of the bank. In the last 10 years but even five years particularly there's a whole dawn of a new age of software as a service type cloud-based services. Bankers used to call them ASP application service providers and so in that realm what's being done is banks are investing in delighting the customer experience but also the relationship managers. Keep in mind the relationship managers are the folks at the bank who are entrusted with revenue generation so you want to keep those folks happy. And so in the brain of the bank you have things like CRM, customer relationship management solutions, pricing and profitability solutions, loan origination systems and those become much more flexible and what we've seen in recent years is a lot more conversation around that best-of-breed class and there's a lot more flexibility for institutions to pick and choose which one of those might survive.
 
In fact we've seen a lot of success with clients and observations in the industry where the acquiring bank may recognize in that brain of the bank environment things that would do well in their technology ecosystem. But don't have the impacts that making decisions on a core processing system over in the heart. We like to think of it as the heart and brain of the bank. I think we are in a new age where selecting technology assets in that portfolio becomes a lot more easy in those [inaudible 00:14:18]sas type solutions.
 
Jim Young: It does and it also goes back again to sort of a mind set. If you go into this merger as an acquiring bank with these guys might have something to show us then you're going to be open to those sort of things and each bank kind of moves at its own pace and some are really doing some cutting edge of things in one area and some are doing another one it just makes sense. If you look at it in terms of expending our knowledge base here rather than we're absorbing people into ours then I think that changes things for you. What about from a culture standpoint. I've seen some in other industries to you see it where it feels almost like there's a merger but there's still really two companies that operate. They don't ever really come together to form one company. Have you seen that with banks or have you've seen it where banks really absorb each other and it's like wow they become one entity?
 
Rollie Tillman: The very beginning of our conversation I thought about banking being a large part of service industries so it's made up of people. People have personalities and certainly banks take on a personality or our culture so I think the biggest, I don't want to say fallacy but we often hear a merger of equals, and you take two banks that are of equal asset size that maybe the negotiation points of putting those together, where lots of similar numbers  on the paper, but the reality is you are taking two cultures and putting them together.
 
I will probably categorize that bucket of merger of equals this being the most challenging. It may actually be a little bit easier when there's little bit of disparity and you can try to assimilate into an already established culture but culture is huge and it ought to be one of the very important points that are considered. It may be that the cultures have been successful pointed in two different directions and putting them together could be disastrous. Or there could be huge synergies, they believe and act and do things in a similar nature and there could be a tremendous amounts of energy.
 
Jim Young: I remember we talked on one of our previous podcasts about it when a bank said essentially was acquired another bank and for the most part let it stay entirely itself. They sort of merged back office operations but made no attempt to rebrand or that sort of thing and we've seen on the opposites, usually you see a lot of that as you mentioned, full assimilation. Well that'll do it for us today. Thanks for listening. If you'd like to learn more visit our resource page @explore.precisionwinter.com. If you like what you've been hearing make sure to subscribe to the feed in iTunes sound file. Google player stitcher. We love get ratings and feedback on any of those platforms. Thanks for listening until next time this is been Jim Young with Rollie Tillman and you've been listening to The Purposeful Banker.

About the Author

Maria Abbe

As a Content Manager here at PrecisionLender, Maria develops the messaging, stories and content pieces for prospects and current clients – showing them the value in PrecisionLender. Her passion for serving others is evident as she leads the volunteer program here at PrecisionLender. Maria’s ability to be organized and constructive, along with her ability to be practical makes her an exceptional addition to our team.

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