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Mergers: Lessons from the Trenches

Central Bank

According to WOCCU, at the peak in 1969, there were 23,900 U.S. credit unions. In 2016, there were 5,757 credit unions in the United States with 103,992 million members comprising 45.4% of the economically active population. Mergers continue al a rate of about one per day. 2,479 credit unions have assets less than 20 million in the 4th quarter of 2016.

For comparison, there were 4,909 banks in the U.S. in 2017. JP Morgan Chase & Co. top that6 list at #2.62 trillion in assets.

Mergers often come about because a credit union CEO is retiring, the membership is demanding more, and the board, often long-tenured and tired of the responsibility, see an opportunity to provide more to the membership and not conduct a search.

Many mergers are initiated by NCUA. Whether that is to protect the share insurance fund or some misguided directive from the agency, it is nonetheless, a cause for the disappearance of credit unions. Problem case officers are quick to suggest merger to a credit union and its board. There is a denial of assistance, and often no discussion of the consequences of a merger on staff and members. It is ironic that as the number of credit unions has decreased, NCUA has increased the number of examiners and their salaries, while subtly suggesting that credit unions reduce employees, benefits, and salaries.

Mergers as a part of a growth strategy are appropriate. For this reason, your plans should address your board's position on mergers, and a merger that strengthens your field of membership and is a good fit culturally has to be on the table. Failure to engage your board now—so that when opportunity knocks you are ready to answer—may leave you wondering what happened, and why.

While mergers aren't fundamentally bad, most ultimately don't add value to companies, and even end up causing serious damage. A merger may mask the fact that the credit union has failed to demonstrate organic growth. That may point to a flawed strategic plan. According to Wharton accounting professor Robert Holthausen, who teaches courses on M&A strategy, researchers estimate the range for failure is 50-80 percent.

Despite the number of mergers and the increase that afforded the winners, credit unions still hold only 6% of all financial assets, while banks hold 94%. That 6 percent is virtually unchanged in 30 years.

Management professor Martin Sikora, editor of Mergers & Acquisitions: The Dealmaker's Journal, agrees. "Companies merge and end up doing business on a larger scale, with increased economic power," Sikora says. "But the important questions are whether or not they gained a competitive advantage or increased market power."

Wharton management professor Harbir Singh says the crucial distinguishing factor between merger success and failure is a sense of objectivity on the part of executives—a "realistic outlook" that needs to be maintained from the initial transaction through the entire integration. The danger, it seems, is when executives "fall in love" with the idea of the acquisition, wanting it to work no matter what the cost.

"Look, company A buying company B is really buying people," Sikora says. Negative outcomes—such as layoffs—are "invariable" and "must be handled humanely." Sikora also advocates immediate and clear communication. "You need to create a good impression. Good employees will quit if they feel their fellow workers are treated poorly."

Losing good employees is part of what a colleague of Sikora's refers to as "merger syndrome." "There is a natural distrust of the acquiring company, which leads to the development of fear and morale issues," he says. For this reason, people will often leave post-merger, even when they have been treated well. Likewise, he notes that acquiring companies need to be aware of a "conquering army mentality." "If one company is acquiring another, there needs to be some realization that the employees of the target company make it what it is."

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Saturday, 25 May 2019


“As a Senior Executive in the Credit Union industry - I have personally experienced along with my staff - what Tom brings to the table as a Coach. Tom is uniquely qualified from his experiences as CEO and President of a Credit Union and brings not only that experience but has a special way of identifying unique qualities that we all have but sometimes have not fully realized and utilized in the work place and in our personal lives. Tom delivers in such a way that exhibits high integrity and a genuine concern for his clients -- I strongly recommend Tom for your organization if you are looking for ways to inspire and motivate your staff to reach to the next level.”…Tim Smith

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