THE CORE PROCESSING INDUSTRY LEADERS FORUM ™

Core search, negotiation and conversion is often viewed as one of the most difficult undertakings for a financial institution. Throw a merger and acquisition into the mix—whether a merger of equals, one credit union absorbing another or a credit union acquiring a bank—and the process becomes even more challenging. As such, a merger project needs to be the highest priority and both institutions must clear the deck of any other implementations as the process requires a significant amount of time from all departments and staff to successfully merge products, processes, and procedures.

Like the recent trend of credit unions acquiring banks, many vendors and credit union associations have also merged. While it seems logical that two organizations using the same vendor would make for an easier fit, this isn’t always the case—parameters and configurations are almost always different. Reasons include each credit union using the technologies and services in a different manner; use of data and related regulatory issues (e.g., keeping seven years of transaction history), and/or the vendor’s ability to accommodate the merger. And in many cases, there are waiting lists for vendors to comply. While a credit union might want to move quickly on an acquisition, they might have to adhere to the Hollywood adage of “hurry up and wait,” which is why they should be proactive rather than reactive.

To ensure that the best contracts are in place moving forward, negotiation tactics are required on both the non-surviving institution and the acquiring institution. For the surviving credit union, the ability to negotiate becomes favorable due to increased assets. And whereas it might make sense that the acquiring institution would continue using its existing vendors, in certain cases the non-surviving institution’s services are deemed more favorable. Seasoned mergers and acquisitions consultants can greatly assist in these all-important contract negotiations and identify existing contract “poison pills.” This process includes developing a third-party vendor list for each institution, identifying any similarities, and determining which are the best surviving vendors. This also ensures that all notifications and termination requirements are satisfied under the existing contract, so that the new contracts can be executed without issue.

Five Mergers and Acquisitions Tips from Proven Technology Consultants

1. Provide an accurate and detailed business plan as to why the merger makes sense to the credit union, its members, and the share insurance fund.

2. Maintain open communication and foster inclusion (this includes ensuring the call center is operational before, during and after conversion).

3. Determine the following differences: product, service, fee, dividend rate, interest rate, third party software, core system, digital banking platform, loan origination system, Visa/Mastercard brands, real estate origination, and general ledger.

4. Execute a gap analysis.

5. Clearly separate the merger from systems integration.
   

Providing a Detailed Roadmap

While a merger can take anywhere from six to 18 months, there are two important dates to consider. The first is “Legal Day One” and the second is “Data Merger.” The former is when the institution that is absorbing the merged Credit Union becomes responsible for all operations—in many instances, this first involves assuming responsibility for “share insurance.” The time frame for this aspect of the process can take as little as three months and should be focused on the 10 noted merger considerations:

Top 10 Merger Considerations

1. Determine which Credit Union is the surviving charter.

2. Determine what branches will be retained, where the new headquarters will be located and how branding efforts will be managed.

3. Determine the new name of the organization or if there will be “division of” designations.

4. Determine who will serve in volunteer capacities on the board of directors, supervisory committee, and/or special member committees.

5. Determine what staff will be retained, what staff will need to be hired and what staff will be terminated.

6. Determine regulatory differences between the institutions (e.g., state or federal regulatory due to institution type and/or counties, cities and municipalities).

7. Determine the intent of the surviving institution regarding what will be changed by Legal Day One versus at time of full data merge (conversion).

8. Determine any fixed assets and property by obtaining valuation (be cognizant of the condition of these items).

9. Determine the merging institutions’ delinquency and any potential write-offs.

10. Determine if there is a large gap between interest rates for income analysis and potential for high accrued dividends (pay attention to geographical differences) and whether there will be different rates for share and loan products.
    

Generally, the first month of a merger or acquisition is spent determining these noted considerations and during the following two months the agreed business plans are carried out.

The data merger process, conversely, usually takes up to one year to fully complete. To ensure a streamlined transition, mock mergers are suggested. During this process, which usually takes place roughly 30 days before the go live date, data is evaluated to make sure it is clean and successfully transferred from the acquired institution to the surviving credit union. In some cases, certain data may have to be manually transferred. To successfully administer this database evaluation, a considerable amount of time and effort is required from both organizations. When this methodology is satisfied, it provides assurance that when the live date arrives, the process, which usually takes two to three days from Friday midnight to Monday morning, is rendered predictable, like flipping on a light switch.

Be Brave and Proactive

As a consulting firm with 27 years-plus experience, Samaha & Associates has been party to over 30 mergers and acquisitions. What is more surprising is that we are now being contacted by more returning clients asking the firm to seek credit unions that want to merge. We are often asked: When is the best time to contact a consultant? In our experience, it is approximately three months before “Legal Day One.” Understandably, many credit unions prefer to wait until they receive merger approval from the powers to be before taking this step, but in most cases, the approval will be received. Credit union executives, therefore, must be brave and proactive as it will better serve the membership in the long run.

When it comes to studying mergers and acquisitions, seasoned consultants understand where the risks, threats and gaps are during each step in the process—whether high-level or from a granular, tactical perspective. There are no surprises because consultants have an expert line of sight that brings forth awareness, avoiding unnecessary hurdles that negatively impact service levels to membership as well as operational impacts on staff.

Due to the current volume of mergers and acquisitions, the number of credit unions continues to decrease, so it may only be a matter of time before your credit union engages in a mergers and acquisitions conversation. For credit unions that have undertaken a merger or acquisition before, they may have developed a routine based on lessons learned. In most cases, however, this process is unfamiliar territory for credit union executives and requires thorough planning, so nothing is lost in the mix.

As experienced consultants, Samaha & Associates has built a detailed road map providing credit union executives with clear, efficient directions to the arduous mergers and acquisitions journey on which they will embark.

To learn more about Samaha & Associates approach to mergers and acquisitions, download its thought leadership white paper: A Credit Union's Roadmap to Successful Mergers & Acquisitions—Technology Decisioning and Implementation Best Practices in 2024 and Beyond.