The merger is announced and it is time to begin putting a new, integrated organization in place. A quick look at the facilities of both banks quickly shows:
- Branches that overlap in the same geography
- Duplicate Operations Centers, and
- Two Headquarters.
It is now time to sort out the facilities and determine which buildings to retain combine or eliminate.
Integrating facilities as a result of an acquisition can impact nearly all business functions. Despite this challenge, however, we have found that facility transition planning is often given a low priority. This can result in significant difficulties for employees on Day 1 as well as longer-than-anticipated paths to achieving the synergies expected within the new bank. Highly effective banks use an acquisition as a catalyst to fundamentally revisit their facilities’ global footprint.
Facility transition planning typically includes three components:
- Site selection – analysis and decisions regarding the new entity’s real estate portfolio and overall facilities footprint and how well it fits the Bank’s future plans
- Day 1 readiness – preparing all facilities for the close of the transaction
- Transition execution – space planning, completing employee moves, and closing facilities
We have found that a strong facilities transition plan can play a significant role in early synergy capture, preventing employee attrition and maintaining uninterrupted operations on Day 1 and beyond.
SITE SELECTION
The site selection process includes balancing numerous considerations such as cost management, talent retention, capacity constraints, and organizational co-location. The analysis that goes into site selection should be comprehensive and include consideration of the acquirer’s legacy sites, as it may be advantageous to close legacy sites in favor of newly available facilities. When a proper balance is achieved, the bank should be well positioned to achieve its strategic objectives as well as its financial targets.
Understanding the cost footprint of the facility portfolio is the initial step in crafting an alternative site list. Cost data provides a method for prioritization to allow the analysis to focus on a few key sites. Cost analysis requires a timely collection of necessary data, and operating cost data and lease terms can provide the integration team with a baseline facilities cost assessment. A secondary consideration is whether a facility is owned or leased.
The decision to consolidate should be based upon more than just cost. Employee attrition can be a major concern for business units that experience widespread facility rationalization. Long commutes to new facilities, cultural differences, and distaste for change could result in heavy employee losses. At times, talent management may supersede the need to cut costs.
In addition, capacity constraints should be considered. Capacity assessments may reveal shortages in useable office space. The new organizational design may require a bank to maintain facilities that might otherwise be discarded, especially if expansion of more desirable facilities is not an option.
Finally, the integration team should consider organizational co-location as it crafts the new entity’s real estate portfolio. The bank should decide how to configure its commercial functionality: Does it make sense for the loan group to operate in a single facility, or should they work in dispersed facilities supporting the various revenue streams and close to customers? Answers to these questions can weigh heavily in site selection decisions.
The site selection process can provide the integration manager with more than a list of facilities to be retained or exited. It should also help determine the scale of employee moves, the impending reliance on Transition Service Agreements (TSAs) and synergy capture potential going forward.
DAY 1 READINESS
- Day 1 readiness preparation should facilitate uninterrupted operation of all facilities upon transaction close. More specifically, proper preparation for Day 1 readiness means that employees will continue to have access to the appropriate resources to perform their job functions. An obvious consideration is IT continuity, but there are a number of less apparent Day 1 readiness factors that should also be examined:
- Security services and building access – will employees continue to have access to the appropriate facilities?
- Emergency response – who will facilitate emergency response programs going forward?
- Contract transition – have all necessary contracts, including utilities, maintenance, and site services, been transitioned to the new entity?
- Office transition plan – have all applicable employee moves been choreographed and receiving facilities undergone appropriate workplace design?
- Site branding – has facility signage been replaced to display the appropriate name, brand, etc., of the new entity?
- Facility closures – if applicable, have site exit plans been designed?
Especially in carve-outs, the complexity of Day 1 readiness planning can be compounded when conveyed employees operate in non-conveyed facilities. If the conveyed employees are unable to move into the new entity’s facilities on Day 1, TSAs must be developed and an appropriate level of separation must be introduced. A word of caution: TSAs tend to be costly, and separation of employees, IT systems, and operating protocol may be difficult.
TRANSITION EXECUTION
After the transaction closes, the focus shifts from preparation to execution. Steps to take include:
- Closing applicable sites
- Moving employees equipment and records into their newly assigned facilities
- Reducing/eliminating reliance on TSAs (if required)
Skillful execution of a strong facility transition plan can position the bank to meet or exceed its synergy targets.
Certain groups of employee moves and/or site closures may be relatively easy to execute, such as when employees are asked to move only a short distance or when the remitting facility is expensive to operate and the destination facility has sufficient capacity to house incoming employees. When possible, simpler transitions such as these should be executed on Day 1 to create immediate cost savings and, more importantly, to establish positive momentum going forward.
In many cases, though, the complexity of facility transition execution requires extensive planning. The difficulty in execution usually resides in managing the various interdependencies among the support functions that need to be in place at each location. Common interdependencies include IT applications and systems transition, HR notification lead times, and site preparation activities. Developing detailed transition roadmaps for each facility should aid the integration team in navigating the interconnected activities required for an effective transition. Establishing milestones and developing timelines should help determine the proper order of transition efforts and reveal “critical path” activities.
A communications program is a critical component to avoiding unintended consequences. Perhaps most important is communicating with staff before announcing changes. Also opening channels of communications with community leaders can have positive impacts. There may be tax incentives to expand a facility in one city versus another.
AVOIDING COMMON PITFALLS
Transitioning facilities during a merger or acquisition is typically a complex undertaking that involves numerous moving parts. Here are a few key action steps for consideration to help the integration team manage the complexity.
WORK WITH THE END IN MIND - Enormous amounts of data are required to support facility transition decisions. Therefore, many information requests will likely need to be developed and collected. To facilitate the information collection process, the integration team should understand the overall objectives and guiding principles of the transition plan prior to the submission of information requests. This should reduce the need for additional requests later on.
ESTABLISH EXECUTIVE OWNERSHIP - Although a large portion of facilities integration well be executed locally, keeping the execution in line with the company’s global vision and strategies requires central accountability. Designating an executive facilities lead to promote the coordination of facilities sub-teams, act as a single point of contact for the C-suite, and facilitate the completion of necessary tasks can be an effective way to reduce redundant activity and provide much-needed consistency in approach.
ALIGN ALL APPROPRIATE PARTIES FROM THE BEGINNING - As stated previously, transitioning facilities can involve a large number of parties. Drawing the IT, HR, organization design, communications, and TSA teams into the planning process from the outset should not only help make the transition plan more comprehensive, but also help promote buy-in and build crucial working alliances throughout the transition process.
PLAN GLOBALLY, IMPLEMENT LOCALLY - Acquisitions that are global in scope will likely involve more facilities than can be efficiently managed from a central office. Regional familiarity is essential to effectively position the local teams to execute transition plans. Facility milestone plans, however, are more effectively managed at the global level, as global management allows integration leaders to perform high-level strategic planning and synergy assessments for the bank as a whole.
Facilities form the infrastructural backbone of an organization, and facilities integration should be accorded the same level of priority as other integration pursuits. Although a complex undertaking, the organizational benefits and synergy capture potential can make facilities integration a key measure of effectiveness in M&A integrations.
