The headlines are crowded with stories about bank mergers and acquisitions among middle market banks. This doesn’t surprise me. While M&A slowed down during the height of the pandemic, it’s ramping up fast now as a mechanism to spur growth and recovery.
Buying is one thing, integrating is another
What I find fascinating about M&A is what happens after the headlines. It’s where the rubber meets the road—with integration. The decisions that middle market banks make and the actions they take in the early stages after a purchase or merger are critical. They have a big influence on leadership’s ability to achieve the expected business case.
I’ve seen how challenging it can be to integrate successfully and quickly without distracting from the bank’s broader strategy. Leaders get stuck in an “either-or” dynamic. They struggle to integrate and, at the same time, pursue competitive priorities like payments modernization, digital transformation or cloud migration. After all, walking and chewing gum is hard to do, and no bank has the luxury of just focusing on integration. Business has to keep moving.
The good news is that banks don’t have to sacrifice progress on either of these objectives for the sake of the other. It takes soul searching, priority setting, sticking with decisions and laying the groundwork within the rules before legal day one. That’s why I tell my clients to begin by thinking through these three fundamentals as soon as possible:
1. Resources: Yours or ours?
There are obviously many questions that must be answered when two banks come together. One of the most essential is how resources and capabilities will be integrated. “New Bank” essentially has two workforces, processes, technology stacks, customer bases and product sets—two of everything that the bank needs to operate. Will New Bank use the acquirer’s resources by default? Or will it use a best-of-breed approach to strategically select the best elements from each of the banks?
While deals typically cover these decisions, I’ve found that this is often at a 50,000 foot view, rather than at the detailed level that’s essential for implementation. If banks use the time before official legal close in a clean-room environment that doesn’t violate any rules, they can exchange key information to work through the best approach. These discussions can be difficult, and an objective third-party can advocate for New Bank’s best interests.
2. Performance: Ready or not?
When two banks come together, the talk is understandably about how the match can multiply value delivery in everything from capabilities to customer experience. Ideally, it’s a 1 + 1 = 3 value equation. Banks often spend insufficient time early on considering the flip side of this equation. When two banks come together, the demands on their systems and infrastructure, workforce and other resources are multiplied. Is New Bank prepared to absorb the surge in demand that’s coming its way? It better be.
This question gets to issues of performance and business continuity, which are at the heart of any successful integration. Imagine that New Bank’s core systems can’t handle volume increases, or that the mobile banking app is much harder to use than it was before. The bank could end up frustrating both employees and customers. This is a liability. Banking customers have no patience, but they do have many other options.
3. Talent: Skills or gaps?
I’ll always be the first to say that a bank’s people are its greatest asset. Middle market banks know this more than most. And it is precisely why factoring in the talent dynamics during integration is so important. Banks need to know what skills the workforce has across both banks, especially in modern technologies like cloud, human and machine collaboration, and agile ways of working. These are the skills of the future, and New Bank needs an objective view of where it stands today.
Understanding the workforce dynamics that play out during an integration can be very complex. The two banks can be at very different places in their workforce transformations. Employees can be uncertain or scared. Some of the best may leave, taking critical skills with them. The sooner that banks can put a talent plan in place that accounts for these contours—and takes employees’ needs to heart to retain top talent—the better it is for everyone.
Change is hard, but change brings opportunity
Whoever first said that change is hard must have been going through a bank integration. It is a period of uncertainty for everyone involved. Leaders are on the hook for synergies and cost savings and revenue growth goals. Employees want to know how ways of working and career paths will evolve. Customers wonder if service levels and experiences will be impacted for better or worse. But by being proactive, even before day one, and developing a detailed plan that accounts for workstream dependencies, banks can get ahead of change and make M&A work for everyone.
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