Top 7 Mistakes to Avoid for a Smooth Merger or Acquisition

As we mentioned in our last blog 3 Keys to Creating a Successful Acquisition Playbook, smaller community-oriented financial institutions often struggle with sustaining organic growth. The complex regulatory environment, challenges of talent acquisition, retention and succession planning in small communities pose steep challenges to that kind of growth. Acquiring or merging with another strong institution could handily solve the growth question, but it can also be risky if not done right, with somewhere between 70 and 90 percent of acquisitions failing.

“Still, there is a reason why M&A is such an attractive proposition for businesses. When done right, it can wholly remake a business, supplementing its technological, personnel or logistical capacity to create something new and different. It’s a level of growth that many businesses are unable to replicate organically.” – Forbes

Tom McGill, PRI Director of Customer Experience, discusses in this blog the top mistakes that financial institutions should avoid to shore up their chances of a successful merger or acquisition.

Top 7 M&A Mistakes to Avoid 

1.     Ignoring the “Unsolvable” Problems 

On big projects such as a merger or acquisition, issues will most certainly arise, according to McGill. The key is to tackle them early, so they don’t fester and cause complications down the line. What is an annoying and perplexing roadblock slowing the momentum today could derail the entire M&A process tomorrow.

Instead of ignoring the “unsolvable” problems, document them and distribute them to key stakeholders throughout the two institutions and create a plan for resolution. Having the right people in place during the M&A process is crucial, and knowing which problems to escalate is one of the key skills found in a good project manager.

2.     Letting Emotions Run the Show 

Turning over the keys of a successful institution or joining with another can be a huge decision with many emotions involved. For founders or CEOs – and even for rank-and-file employees – the institution is often a big part of their identities. Pride in past decisions and loyalty to each other and the community can cause ruffled feathers and stubbornness to change. However, allowing those emotions to dictate decisions can lead to irrational choices and cause people to overlook critical details.

McGill said the antidote to letting emotion run the show is to clearly specify the criteria by which decisions will be made at the beginning of the integration. Defining, for example, whether minimizing cost or providing the best customer experience or some other element will guide all major decisions and can help offset any hurt feelings later in the process.

“Defining the filters ahead of time will help the team remember that we’re all here working toward the same goals,” McGill said. “It provides ownership and breaks down some of the resistance to change when I know why I’m doing certain things.”

3.     Relying Too Much on Vendors 

Relying too heavily on vendors’ opinions without independent verification can result in biased decisions that affect the FI in a negative way. Partnering with vendors during M&A integration is common and helpful as they provide critical resources and knowledge. However, they must be managed as any other component of the conversion team, and project leaders should continually ensure alignment between the vendor’s objectives and those of the bank.

“Vendors have their marching orders just as the financial institution has theirs,” McGill said. “A vendor’s number one issue is often getting the project completed on time, which may lead to taking shortcuts that are not in

the best interests of the FI. It’s not a bad thing, but you need to be aware of everyone’s goals and interests.”

4.     Micromanaging the Process

Senior leaders who try to micromanage the project team and control autonomy and resources can find themselves facing delays in progress and a lack of innovation when solving problems. If the project team is constantly stopping and starting while awaiting approvals and permissions from leaders, it can stall the project and keep it from moving forward efficiently and successfully. Empower the team to make decisions and provide the resources needed to accomplish their goals to drive the project forward.

5.     Seeing Conversion Day as the Finish Line 

Treating the day of the merger or acquisition as the end goal overlooks the importance of post-merger integration, which is crucial for long-term success. The day of system conversion is a huge milestone in the overall integration efforts, but the work continues long after that date. System data as well as customer and employee experiences should be tracked and problems addressed for multiple reporting cycles. Outstanding issues must be monitored and reported until remedied. 

6.     Poor Communication

Lack of clear and transparent communication can create uncertainty and anxiety among employees, customers, and other stakeholders, McGill said. In the absence of communication, these constituencies will create their own narratives, which often will not align with reality. To increase the opportunity for success, communicate clearly and often, repeating messages using diverse channels and delivery methods.

7.     Cultural Misalignment

Almost every announced merger speaks about the cultural alignment that exists between the two organizations. Not enough work is done, however, in validating that cultural alignment and making sure that it is being nurtured as part of the integration activities, McGill said. 

“There will inevitably be areas within the institutions that are not culturally aligned,” McGill said. “Dealing with these disconnects directly is imperative.  Things won’t get better by themselves.”

While a merger or acquisition is a huge undertaking, it can be the best way for a smaller financial institution to grow to the next level. Having a thoughtful, strategic mindset that seeks to avoid the top M&A mistakes will increase the chances for success and expansion of an FI’s imprint on the communities they serve.

Resources 

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

5 Things Your FI Should Do to Prepare for a Merger or Acquisition  – PRI

3 Keys to Creating a Successful Acquisition Playbook – PRI

Demystifying Mergers & Acquisitions to Make the Most of a Transformative Process – Forbes

PRI 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.