Key Components of Merger Integration Success

Ben Franklin may not have had a bank merger in mind when he penned this quote, but it certainly applies. Mergers and the related conversions they bring are seminal events that require careful planning, thorough communication, and precise execution.

Successful merger-driven integration reflects the following characteristics and components.

A consistent, thorough communication strategy

According to McKinsey, structured communications play a critical role in mergers by preventing the distractions that often accompany them and could even damage the existing businesses. In addition, the communications plan lays a foundation for the combined organization’s future success.

Communication in bank mergers starts with regulators, ensuring they understand the strategy driving your institution’s expansion as well as the steps you plan to take to ensure the on-going success of the business. I have spoken to discouraged banking executives who regret not investing in this communication effort up front as their staff subsequently had to work much harder than would have been necessary to gain eventual regulatory approval.

Beyond the regulators, existing and new employees, shareholders, and existing and new customers require concise communication on a pending merger. They will expect updates with a regular repeatable cadence – so keeping your communication team in the planning loop is imperative.

A Target Operating Model that creates the best of both worlds

Successfully replacing a core processing solution through a merger shouldn’t be merely a “swap out” of one system for another. To deliver the substantial efficiency gains available in advanced technology platforms, innovative business processes must accompany new technology. Best practices and finely tuned staffing models can be applied to ensure the realization of maximum value, starting well before the actual conversion event.

A team of technology and business experts can develop a Target Operating Model (TOM) that defines how your bank can use the new applications and identifies business process efficiency improvements available from the new solutions. The overriding goal is to maximize the benefits of new technology features and functions and help ensure your institution achieves the most efficiency and highest return on your merger transaction investment.

The desired culture

The culture and people of a newly merged entity are just as important to a transaction’s success as other factors. Bank executives often carefully seek the right culture within a merger partnership, and that fit becomes just as important as complementary markets and product set expansion strategies. Given this investment in human resources, the alignment of the technology and business processes to the new entity are critically important – which is another reason to invest in a Target Operating Model plan and creation.

Clear leadership and governance.

Merger initiatives demand skilled leaders to provide firm governance to ensure bank and partner resources meet key commitments and provide the expected deliverables.

Senior Program and Project Managers should comprehend and adhere to a bank’s established governance methodology while being seasoned enough to provide sound judgement and executive communications.

The skills and attributes bankers must consider when looking for Program and Project Managers to lead various aspects of a merger initiative include:

• Leadership and accountability
• A business (not just a technology) focus.
• Proven Change Management and Control expertise  

Synergies with outside assistance

M&A transactions must deliver on the anticipated synergies (both savings and growth) derived from the deal. The traditional savings in the areas of staff functions, such as Legal, Finance, and Marketing, are easy to identify.

Bank technology partners can assist in defining and developing technology synergies that add value to the transaction and/or help keep customer satisfaction high. With the foundation of mutual trust, bankers can ask partners to help them ask the correct questions during technology assessments – both in the due diligence and initial planning stages of the merger transaction.

Senior executives at the technology partner can serve as a sounding board to help in the vetting process and, most importantly, give a realistic appraisal of the timeline for the M&A consolidation process to occur.

Technology partners can then share their timelines and resource/support plans with the bank to share with their internal staff (and if needed) their Board of Directors. The technology partner’s ability to scale becomes especially critical when a transaction could double or triple the size of the new organization.

According to a 2024 Bain report, with elevated interest rates, macroeconomic headwinds, and emerging commercial real estate issues, more troubled banks are likely to surface over the next 12 to 24 months in the fragmented U.S. banking system. If this happens, expect more deals to be allowed as regulators prioritize soundness and safety over usual regulatory concerns.

With bank mergers and acquisitions growing, the value of strong M&A planning, bolstered by a thorough tool set, can ensure success in initial and subsequent merger transactions.