M&A Integration: It’s More Than a System Conversion

When a financial institution conducts a merger or acquisition, one of the main aspects the organization’s leadership tends to prioritize more than others is system conversion. While this is of course a major factor, there is much more to successful M&A integration than this one piece of the pie. Mike Holt, PRI partner, says there are several crucial areas that can sometimes be overlooked or undervalued in the process of combining two entities. 

Resource Allocation: Who’s on Your Team?

“Having a good established ‘playbook’ is critical for sure, but even the most sophisticated, tried-and-true playbooks are useless without organized players and coaching or leaders,” Holt said. “It’s important to the M&A integration process to have key people with the appropriate experience and at varying levels within the new organizational hierarchy to execute the plan.”

Holt recommends clearly defining all roles and responsibilities necessary for success including a project lead, a diverse and experienced steering committee covering all areas of the FI’s operation, and subject matter experts for detailed troubleshooting and guidance. Both the acquirer and acquiree must have proper project representation to promote accountability, foster assimilation and catch all those unexpected glitches in the M&A process.

Leaders must keep in mind this is a big project that needs true project management with accurate tracking and comprehensive governance. This framework, while not an overnight move when done properly, will catch issues to resolve immediately and identify those that require pausing and tackling later.

Resource allocation should be an intentional and well considered action, not something done on the fly or without care. FIs must address it ahead of the merger for planning purposes, and then be flexible enough to readdress the mix as the integration unfolds and benchmarks are accomplished.

Culture is King

At some point in the M&A process, employees from both FIs are certain to ask, “What is the culture in this new organization and how do I fit?”  Leadership should proactively define and communicate exactly that to everyone.

 “Although there will be redundancies, and technology allows for some healthy attrition, the bottom line is in today’s labor market, you absolutely must identify and keep your best people. To ensure success, you also want to retain essential industry and institutional knowledge during this transition.”

Merging organizations tend to lose some of their best talent when people feel undervalued or underutilized.

Some ways to fortify the culture and retain talent include:

• Communication, and lots of it – you really cannot overcommunicate. Both internal and external communication is crucial. Properly staffing the call center ensures your internal customers are supported as well as your  external, true customers. Don’t leave people in the dark about what’s happening in the integration process.
• Training with a focus on culture. Ensure that new employees are trained proficiently on the new processes they need to know to do their jobs well. Assign “buddies” in each department to assist with transferring knowledge and building relationships. Culture-building activities should continue for 6 months to a full year after a successful conversion date.
• Follow through. Be intentional about rewarding production and performance. Celebrate achievements publicly and ensure senior leaders are expressing their gratitude to employees for their success. Reward employees with extra compensation targeted at retaining customers and continue to reward them throughout the duration of your integration efforts.

Bottom-line Efficiency Leads to All Area Improvement

The time during M&A integration can be the best time to leverage and optimize vendor agreements, as well as clean up minor system practices that tend to multiply and waste money over time. If done right, these efficiency steps can help pay for some of the expenses associated with integration.  

Some efficiency improvement areas to consider include:

• Best lending and NII practices, including debit card portfolio performance and interchange income network arrangements.
• Full vendor and contract review, keeping in mind that vendors are looking out for themselves. “One major way PRI can bring value to a project is by conducting a full vendor review,” Holt said. “Bankers and deal brokers may not know that this step can positively affect share price and even help pay for much of the M&A process cost.” Many benefits from the new economies of scale can be leveraged on both the new and surviving contracts.
• Superior data validation and mapping. We’ve all heard the term “garbage in, garbage out.” In order to end up a better entity in the end, this is a significant step to any successful conversion or integration project.
• System clean-up including overlapping contracts. FIs must choose which vendor to go with and determine the best time to terminate others. While the FI does not want to grow volume through the term, meaning paying more over time, they also should not cut bait too quickly before they are ready for a smooth transition and have completed an expert, comprehensive review.
• System redundancy. Yes, it’s worth repeating. It is likely that the system of the acquiring bank will be used going forward, but FIs should not discount the systems of the acquired entity. Often, the processes at smaller FIs are cleaner and could be adopted.

Process and Gap Analysis

Do you have agreed-upon, consistent methodology amongst the M&A integration team for process and gap analyses? This project and integration team provide the ideal opportunity for an objective review of both institutions’ processes – observing key function, analyzing volumes, establishing throughput standards, mapping complete processes, and redesigning where necessary – to ensure operational efficiency and continuity of service at optimal levels. New people and new processes naturally lead to some bumps in the road that should be addressed while everyone is paving the new path together. 

Some examples of questions to ask include:

• What key step is missing in our customer onboarding?
•  What if training doesn’t cover how to put a compromised debit card into the appropriate status?
• Is this spreadsheet tracking redundant to a system-based tracking already in place, or possible but unknown to the group?
• Which processes throughout the FI take the most time and which institution (acquirer or acquiree) handles each process most efficiently?

“The true value of a consultancy of experts like PRI is that everyone at our firm has been a banker at some point in their careers, and they’ve been in the bankers’ shoes while going through M&A integration,” Holt said. “We know the pitfalls, and we can help our clients avoid them.”

Resources:

Why Culture Matters During a Merger Acquisition Integration, PRI

M&A Integration: A Focus on Culture, PRI

M&A Integration: A Focus on Processes, PRI

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to propel growth and improve profitability.

PRI partners Mike Holt and Mikelle Brady are presenting on this topic at Bank Director’s Acquire or Be Acquired Conference January 29 – 31, 2023, in Phoenix, Ariz. The theme of the conference is Exploring Your Growth Options. In this blog, Holt dives deeper into what senior leaders should be thinking about during the M&A integration process to ensure organization-wide success.