Like a lot of us, New Year’s resolutions for many community banks are based around improvement and growth. Spurred by the recent tax reform bill, many are looking to a possible merger or acquisition as a way to meet their business needs and improve their long-term growth for the coming year.
However, banks can have a difficult time working through this process effectively, and for some, knowing where to start can be equally daunting. Our own experience has shown us that most successful mergers tend to come from a combination of careful and thorough planning, meticulous review, strong and consistent communication, solid execution and a willingness to learn from the experiences of others.
Recognizing Your Needs & Knowing Your Goals
Before you start planning and executing on any merger and/or acquisition (M&A), it’s imperative that bankers have a solid idea of both what they are looking for, and what they are not. By taking a strategic and focused approach to your initial research and discussions (and then throughout the entire process), bankers are better positioned to effectively identify those elements that will help them succeed while eliminating more of the roadblocks and possible dead ends.
In addition to reviewing factors including lines of business, geography, financial compatibility, workforce talent, and customer expectations, it is critically important to complete a thorough assessment of the cultural alignment for both organizations. Going into this process while attempting to combine two mismatched cultures can often prove a challenge too steep to overcome and significantly diminish the overall value of the merger. Having the wrong cultural fit such as major differences in governance processes, compensation, customer service philosophies, work arrangements, and feedback can destroy a deal faster than any other factor. Rather, making sure these elements are aligned from the start can create a much smoother path to success.
Diligent Planning & Early Strategy
Once you know your needs and goals, the next step in any successful M&A is making sure you have full buy-in and understanding from all involved parties prior to the merger taking place. Once this is confirmed, it is vitally important that both institutions ensure their internal processes and operations are in good order beforehand. Additionally, banks must consider the resulting demands on their team and review their capacity to handle the additional responsibilities that will inevitably come from combining two previously disparate financial institutions.
Examples range from handling increased customer transaction volume to the need (and ability) to rationally determine which processes and/or systems will remain and which ones should be removed or changed. Not only will employees be facing an increased workload of “new” customers, but they may also be working under a completely different organizational and operational system, including technology. Proper planning with both teams is a key factor in setting them up for success prior to the merger, and ensuring agreement among all levels of the new organization moving forward.
Communication Is Key
As with any relationship – interpersonal, corporate or otherwise – consistent, open and direct lines of communication between all parties is critical to the success of an M&A scenario. With sincere and honest dialogue as the foundation, both organizations can build the necessary trust to effectively address any potential issues that might naturally occur along the way, while also forming the vital connections that are needed beyond the initial discussion phase.
Both parties should always strive to be candid and honest throughout the entire process. It is important to remember that an M&A can be a stressful experience for both parties and emotions will likely run high for all involved. Recognizing this and that some parties may not be as open to the M&A as others, banks must ensure the lines of communication stay open and everyone remains on the same page. This will be crucial to their ability to work through key details as they become agreed upon and documented.
Bold & Thorough Execution
As suggested earlier, any successful merger or acquisition begins with knowing what exactly your institution is (and is not) looking to achieve from the process. Employees will look to leadership to set the overall tone, so banks must identify and communicate their goals early in the discovery process to guide and define how operations are executed and ensure that staff responds accordingly. This, in turn, creates the standard for how business will be done in the newly combined organization once the process is complete.
Operations – Making the Right Choices
Combining multiple operational teams and systems infrastructures requires a great deal of attention to detail over a host of moving parts – requiring continuous and comprehensive analysis and evaluation. Making decisions based around which team is acquiring the other (or internal politics) is a counter-productive approach and one that we have seen severely limit the success of a merger or acquisition. Rather, bankers should assess with an unbiased eye focused on ensuring that decisions related to systems and processes are in the best business interest of the institution that they seek to become through the merger.
Leveraging the Right Partners
Finally, and what may be the most important step for a successful M&A, is effectively leveraging the relationships you may have with those who have previously been through a similar process. The banking industry has witnessed much M&A activity over the past few years, and the experiences of your peers could closely match your own plans – creating a perfect sounding board for input.
It can be invaluable to have a trusted resource you can share your opinions, ideas and concerns with, and identifying that perfect resource early can be a game changer for any bank. In turn, this will require an open-mind and the willingness to listen to, learn from and utilize any feedback that is offered.
As you evaluate your future merger opportunities, keeping these suggestions in mind for your process will help you be better prepared, ensure a smoother transition and position you for success.
Phil Moore, CPA, is managing partner at Porter Keadle Moore (PKM), an Atlanta-based accounting and advisory firm serving public and private organizations in the financial services, insurance and technology industries.
