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Acquisition Integration
Most of the banks in the US are on an acquisition track. While not all view acquisitions as a line of business, many feel its an important element of their growth strategy, and most feel that bigger is better.
As banks continue to grow by acquisition, the effectiveness of this strategy has been brought to question. The mega-mergers of the late 90s didnt fulfill their promise with the notable exception of Wells Fargo, and the analysts became more attentive to acquisition integration risk and execution effectiveness.
What are the key elements in making acquisitions work? How far do you go in cost cuts, how fast should you change the sign on the door and how much revenue enhancement can you expect?
First, remember what you bought. You paid a premium for this institution, and you want to make sure that premium doesnt dissipate among draconian cost cuts and major changes in credit culture. Also, they couldnt be doing EVERYTHING wrong if you paid a premium for them. Therefore, be careful not to throw the baby out with the bathwater; treat the acquired institution with respect and retain the elements that made them worthy of your acquisition dollars.
Be upfront about your values, vision and integration approach. The more the acquired institution knows about what to expect, the better the integration process will be. There are certain aspects of your culture that are at the core of your existence; share them openly and as non-negotiables with the acquired institution. On the other hand, make sure upfront that you are compatible where it counts the most your credit culture. When credit cultures are dramatically different, there is a major customer impact when the culture changes, and, with it, customer attrition. When two different credit-oriented institutions combine, the price should reflect greater customer attrition than typical.
Build a bridge from where they are to where you are. Create a road map, spelling out the final destination and the milestones that will take place to get both institutions there. A detailed roadmap is necessary to help the acquired institutions leadership and staff visualize how theyre going to get where you want them to go, including all aspects of the operation, customer relationships etc.
Remember the two questions customers will ask the most: Will you change my checks and will my fees change? Prepare your entire front line team to accurately answer the question and support them with scripts to overcome objections to the changes you know youre going to undertake.
Be very specific about expectations and the definition of success in the new, combined company. Spelling out aspects such as how many calls do you require each week from commercial loan officers, to whom (customers, prospects) and whether they are in person or not is appropriate. People want to succeed in the new company but theyre not sure what it takes to be successful. You can help them by clearly painting the target.
Pay attention to the individual level; spend time with people from the acquired company to both learn who they are and let them get to know you and your company. Lay down for them the path to success and promotability and provide intense communication. These are ultimately the people who will define the customer experience and help the customer make final judgments about the effectiveness of this deal and its impact on them. The front lines buy-in can make or break this acquisition.
Cutting too much too soon will debilitate your revenue growth capacity, nor matter how carefully you cut. Dont over-promise the Street, and both you and your customers will benefit from it. Just observe the many mergers that over-committed and under-delivered, and the decimated franchises they left behind. There are plenty of them!
How much to cut, how much to expect in revenue growth etc. are highly dependent on where both you and the acquired institution are with respect to these measures and the culture that comes with them. While it is important to remain flexible, it is equally important to identify the elements that will not change, and execute those as soon as practical (many aim for closing date). These include the values and culture you are committed to embracing and maintaining; financial goals that must be achieved; operational and technology conversions; and layoffs and other human resource changes (such as the new organization chart; wholl stay and wholl go; etc.). Candor pays off upfront, and you can always support it with retention bonus for impacted individuals whose job will be eliminated or at risk.
The most important lessons from the Wells Fargo-Norwest merger, which is held up rightfully as an excellent example of successful integration of two highly disparate organizations, are:
Take the best of both worlds not just by paying lip service to it but in reality, demonstrated through organizational balance (having executives from both companies in senior positions), system balance (picking the right systems regardless to which institution had them) and overall merit-based decisions
Be clear what will NOT change (vision, values)
Give everyone an opportunity to success and buy-into the new organization
Be deliberate, thoughtful and highly disciplined in the integration process
These lessons are good guiding principals for companies who are embarking upon acquisitions and integration. As their importance in your income statement and balance sheet increase, these elements become even more critical to your performance, and effective execution depends on their heeding.
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