Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewacquisition integration - the acquired bank's perspective
The recent changes in the size definition of a systemically important institution and the on-going threat of technological irrelevance have impacted the bank M&A market significantly. We are seeing more deals taking place, and the pace is expected to accelerate further.
Much has been written about acquisition integration from the acquirer’s perspective: best practices, advice on not alienating the existing workforce, merging systems efficiently etc. Not enough has been written about the acquired workforce. Do they know what to expect, both the rank-and-file as well as management? How can they better handle the pressures associated with losing their brand, their identity, and possibly their job?
In this article I am following the framework of Price Pritchett, whom I quoted in the past. His brief but poignant booklets are insightful and helpful in tackling well-honed topics, including this one.
1. The stigma of being acquired.
Corporate growth is a central theme to any company’s success. Yet, few folks consider being acquired a growth strategy – although it really is. Growth – like all change – can be painful, and being acquired is no exception. It yields uncertainty, operational challenges, unexpected customer issues and jarring management changes. It can be perceived as a negative development, or as an opportunity for personal growth and corporate survival. Whether the cup is half full or half empty is in the mind of the beholder, and being acquired is no exception.
2. The emotional trauma of being acquired.
When the rumor mill is working overtime anticipating the bank’s acquisition, a series of emotional shocks takes place among most employees.
First, there is the uncertainty surrounding the entire transaction. Everyone braces for more surprises, and that, by itself, is emotionally taxing. The future is uncertain for a good reason – no one, including the acquiring company, knows exactly how the new combined entity will function and what it will look like. Sometimes even the brand name isn’t decided upon until later, and system decisions which are highly impactful to all constituencies are almost always made after the deal is done. Such changes impact the work life of most of your employees, and the ambiguity inherent in the situation is difficult for most to handle.
Second, the very fact of the bank’s sale often leads to mistrust of management, who chose to sell the company (even if for excellent reasons) rather than go it alone. Many employees ask themselves, when will the next shoe drop?
Third, there is a sense of loss. Many employees are loyal to their bank, and their team becomes their second family. Losing the identity of the existing institution is painful to long-term employees, who often grieve for that loss. They miss the old name, headquarters, messenger who no longer works in the company, or small benefits they enjoyed in the old environment.
Fourth, folks start thinking of themselves. Self-preservation becomes the norm. Employees are afraid they can’t depend on the bank or management to take care of them as they have done in the past. Even their direct boss, who might have been their protector, could lose power and be unable to help them in the future.
3. Growing pains.
The emotional trauma described above is almost inevitable. It is a natural side-effect of acquisitions. It can be controlled and mitigated, but not eliminated. Consequently, it generates a whole new set of management challenges and organizational problems. Management needs to understand these challenges and strategize on helping the company cope with the problems that resulted from the merger.
Several issues typically emerge:
• Communication failures (people keep news closer to the vest, partly due to lack of trust).
• Productivity problems (as folks are more preoccupied with their own fate).
• Loss of team play (as people vie for scarce positions in the new company).
• Power struggles and politics (as two management teams meld into one, and inevitably some executives lose their jobs).
• Low morale (as a result of the heavy uncertainty and volume of change).
• Weak commitment both ways – from the company to the employee and vice versa (since so many positions are typically eliminated during mergers).
• Early bail-out of the best employees (as many anticipate eventual job loss, the best ones can get a job elsewhere the fastest; they pre-empt the anticipated firing and go elsewhere).
Management should anticipate these common issues and accept them.
There is a predictable emotional pattern when people experience loss of major change. The most loyal employees of the acquired bank are the ones who feel the deepest loss, as they strongly identified with the brand, team and customer base of the acquired bank. In addition, job satisfaction is often diminished due to the disruptions caused by the merger, temporary reassignments and customer friction. Management should anticipate these feelings and tackle them head-on. Expect this “corporate convalescence” that goes with the transition period in a merger, as Pritchett aptly named this period, and develop plans to manage and minimize it.
Expect the following:
• Shock and numbness. Initial reaction by most employees is disbelief. Some anger may show as well. A feeling of helplessness emerges.
• Suffering. As the shock wears off, folks start mourning. They become nostalgic about the past, romanticizing how wonderful things were before the acquisition. While the past is idealized, the present is often vilified. Management should do its best to remain objective about both the good and bad times the acquired organization went through.
Another typical reaction for people is to hunker down, unwilling to make decisions or take any risks, resorting to familiar behavior and comforting habits. This could be problematic, because management wishes to move beyond the past and affect change. This is a difficult time to all, including management, who find it hard to navigate the emotional turmoil of many members of the team.
• Resolution. When employees start looking at their bank more realistically and identify future opportunities, they finally go beyond the mourning into accepting the new ballgame. Folks start putting things into perspective and figuring out how to navigate the new organization. Resolution does not mean cohesion or healing, but it does mean improved functionality.
5. Focus on the positive aspects of the merger.
Management can help the employees get through the grieving process with limited impact by taking active steps in acknowledging the loss and focusing on the future opportunity. While management can’t control the employees’ feelings, it certainly can control its own attitude – which makes a huge difference in the spirit of the entire team. This is also a good time to offer new opportunities to people and be more tolerant of their mistakes when they fall short of expectations. Management knows change is happening. It should embrace it and become a change agent, rather than encouraging nostalgia and challenging change. It is important to accept that there is more than one way to be successful in banking, and be open to alternative approaches from the acquiring bank.
One pattern that presents itself in many familiar changes – such as a change in Administration or the President – is to blame everything that goes wrong on the past Administration. Resist the temptation to blame everything you don’t like on the merger. Use the deal to spur introspection and self-examination; it might help you stretch and become a better manager or team. Use this opportunity for self-growth and learning. Getting to know the other team will also help; you might even learn something from those guys. Make an effort to learn how they make loans, gather deposits, serve customers. Get involved in the transition process and joint task forces. The better you know the new company, the more effectively you can work together.
Management should also brace for the emotional negativity that will persist for a while. In addition to the visible, overt resistance, there will be passive, water-cooler conversation resistance. You can handle some of the more stressful situations with humor, or even stress-reducing techniques, either individually or as a team. We should all recognize these are difficult times for all – acquired and acquirer staff alike – and find ways to bring a little more levity into the daily work environment.
Getting acquired is often perceived as unfair by the acquired bank team. It’s not the reward they envisioned for their hard work and dedication of hearts and minds. While it is important to acknowledge and understand these feelings, each individual needs to own their success and understand that, while they have no control over what happened, they have complete control over how they handle it.
Concentrate your efforts on moving forward rather than blaming the present and yearning for the lost past. Make yourself valuable to the new team and look for opportunities for personal growth, corporate contribution and making a difference.