Last week we started to dive into the topic of mergers and acquisitions (M&A) and how they impact banks and credit unions. In last week’s blog we spent some time discussing the impact of an M&A on the internal processes of a bank or credit union. Here is a quick summary of how the inner workings of an institution may be affected by an M&A:
- Disrupt operational tasks
- Increase revenue
- Strategic planning
- Institution may need to adjust and take on new portfolio/business
- Onboarding and training
Overlooked Challenges of Mergers and Acquisitions
While every transaction is different and undoubtedly comes with its own set of challenges and questions, there are a few common, albeit overlooked, challenges that we see arise when one institution mergers with or acquires another. More often than not, troubled assets are uncovered during M&A. In many cases, it is a third-party vendor that uncovers negative or problem loans and other issues. Let’s take a brief look at why this occurs and why it is such a challenge:
- The institution in question did not have a good system for loan applications, tax monitoring, escrowing processing, and other tasks
- The third-party vendor utilizes a smart and efficient reporting system that was able to highlight the problem areas
- A fresh set of eyes may be able to uncover the problem areas and offer new, effective solutions
Before we move on to the other challenges we would like to point out that one of the biggest problem areas affected by M&A is property taxes. Whether due to an institution's practices for recording and reporting property taxes or some other reason, this is an area that many banks and credit unions struggle with. Because of this fact, it is even more important that a third-party vendor is used. With the expertise, resources, and tools of a vendor, a bank or credit union will no longer have to worry about property tax monitoring, notifying clients, and everything in-between.
Beyond troubled assets, there are a series of other challenges that an institution may face during an M&A:
- Failure to communicate and adequately train staff
- Once an M&A is underway, institutions often forget to take a step back and make sure everyone is on the same page
- Employee retention
- It’s a given that not all employees (on both sides) will be happy with the M&A. In order to retain desired employees, make sure communication lines are left open and that everyone is in agreement in regards to benefits, compensation, and so on
- Strategic planning
- Prior to a M&A it is important that a smart strategy is implemented in order to avoid any problems from arising
Research indicates that failure rates for M&A are between 50% and 70%. This is due in large part to the fact that organizations do not take the time to address challenges and come up with solutions that will actually make an M&A successful.
To learn more about challenges of mergers and acquisitions faced by banks and credit unions and how to ensure any problems are addressed and remedied before it’s too late, please check out our latest ebook, Overcoming Challenges with Internal Processes During a Merger or Acquisition. If you have anything to add to this subject, please feel free to use the comment section below.