“The greatest impediments to our bank merger were cultural differences, IT and operational integration. A solid plan for executing this integration was a best practice much too important to ignore."
The Challenge
When a bank takes on the task of integrating another entity due to merger or acquisitions, there are myriad decisions that must be made. How many call centers or data-processing sites should the new bank keep? Which bank’s loan processing or teller platform system is superior? Which institution has the best staffing model? Who has the best technology platform? Should the acquiring bank attempt to accommodate the functionality of the acquired bank’s technology platform—saving, for example, a unique feature that its own system lacks? Or should the acquirer simply move all the acquired bank’s customers to its various banking systems in an effort to rationalize the combined technology infrastructure as quickly as possible and cut costs?
These are some of the common issues that have to be addressed when entering into the planning phase of the integration. Many integration projects drag on as a result of poor planning, a lack of strategic objectives and a methodology tainted by politics.
Catalyst Response
The pace of banking industry consolidation has slowed considerably in recent years, but is expected to move to the forefront this year.
A successful merger is one that delivers a higher rate of return to the acquirer’s shareholders within a reasonable period of time. Paying too high a takeover premium usually forces the acquirer to rush the integration process to quickly eliminate excess costs, thereby avoiding any negative impact on its own shareholders. And in this particular undertaking, haste frequently leads to costly mistakes.
But the integration challenge remains; there is a myriad of decisions that must be made during a post-merger integration project. How many call centers or data-processing sites should the new bank keep? Which bank’s loan processing or teller platform system is superior? In most cases, the acquirer has a strong preference for its own technology infrastructure, because that’s what it knows best. Should it try to accommodate the functionality of the acquired bank’s technology platform—saving, for example, a unique Internet Banking feature that its own system lacks? Or should the acquirer simply move all the acquired bank’s customers to its various banking systems in an effort to rationalize the combined technology infrastructure as quickly as possible and cut costs?
Planning and forethought is the single most important ingredients in a successful post-merger integration. The planning process must start during the due-diligence phase, which is when the acquirer needs to take a close look at the target’s entire technological architecture, products, services, locations and decide how the combined bank will operate.
At Catalyst we state the most difficult aspect of post-merger integration is not the technical requirements of migrating Bank A’s branch customers to Bank B’s retail deposit system—it’s project management. Creating and executing a highly detailed plan to combine the technology infrastructures of two banks is an exercise in process management. It’s the complexity of the undertaking itself—with thousands of separate tasks that must be performed by people working under pressure to meet tight deadlines—rather than the underlying technology that makes post-merger integration so challenging.
Catalyst Deliverables
Road Map Document
Documenting and communicating new strategies and business objectives based on the original rationale for the transaction is the key first step towards developing an effective integration plan. We prepare detailed integration workplans and performance milestones that will track integration progress. We focus attention exclusively on what is best for the financial institution, rather than on issues surrounding hierarchy and turf battles.
Communications Plan
When a merger transaction fails to achieve desired results, poor communication, more than any other factor, is often to blame. We assist with the structuring of the communications plan that will announce the transaction and, over time, its transition details to key stakeholders, including investors, customers, suppliers, employees, the media and industry analysts. We utilize a proven and effective communications methodology that can be tailored based on the specifics of the transaction.
Human Resources Plan
We assist with planning for the retention and integration of human resources after a merger or acquisition, including the board, senior management, middle management, technical, clerical and front line employees spanning all functional areas. We work closely with management to define the optimal organizational design based on revised business objectives. We help to create new organization charts and rationalize disparate titles, benefits plans, and compensation schemes. When appropriate, we assist with "reduction in force" initiatives to achieve cost savings driven by post-transaction redundancies in human resources.
Management Information Systems Integration Plan
Integrating two different technological systems, while continuing to run each institution can be a massive challenge. It requires proper planning for phased transitions, extensive preparation, intensive testing and training and more training. We work with other members of the integration team to define workable implementation plans as to what needs to be integrated, when it should happen, and how it can be done successfully.
Product and Service Integration Plan
We work to define the go-forward product and service mix and ensure that product teams understand and support the new plan. We help set priorities for new product development and we define feedback mechanism to track progress and obstacles. We identify and pursue product synergies.
Operations Integration Plan
We prepare a detailed integration plan for operations, including all functional areas, such as accounting, loan servicing, item processing, day 2 operations, marketing, purchasing, and branches. We establish a detailed vision of how things are going to work in the future and what steps need to be taken to get there. We create a forum for issue identification and resolution (e.g. a customer say it will stop doing business with us unless we commit to continued support for an old product line).
