Commercial Loan Automation
Small Business Banking
BirdsEye Viewfdic assisted acquisitions
Glenn Kocher, CCO of WSFS Bank, emailed me thusly: "Anat,
your newsletter keeps me grounded in these difficult times. It
is a constant reminder to send a communication to the troops with a
bit of my own wisdom tossed in with your and others ideas.
More banks than ever will be presented with the opportunity to acquire failed institutions with the FDIC's assistance. Some of these acquirers do not have much experience in acquisition assessment and integration. Others who have done deals in the past might have expectations that will not be fulfilled given the unique nature of the deal. Here are some thoughts.
First, the facts: there are several ways to bid on assisted transactions: with loan share; without loan share/deposits only; with a deep discount for loans; and with bids on specific loan pools in addition to the deposits. The FDIC is super busy these days, which means their responsiveness might be lacking. The lead time between bid and close varies, but is typically 3-4 weeks, so speed is of the essence. Typically deposit premiums range around 1% +/- 0.50%. One of the benefits of such deals is your total flexibility in canceling any vendor contracts, employment termination etc. On the other hand, these deals take a lot of resources, so being prepared is key. Therefore, where appropriate, using vendors can be very helpful. For example, using a payroll contractor is a good way to ensure that the transition is smooth and that payroll doesn't get impacted in either acquired or acquiring bank.
Assisted deals are unique in some ways, most notably in the very short time window between opportunity discovery and decision. Often there is no time even for rudimentary due diligence, let alone a thorough assessment. One way to mitigate this short opportunity window is to have the leading members of your SWAT team identified before any deals come to the table. Folks who know they might be whisked away from their "day job" to take a look at a potential acquisition and support a decision in very short order will be better prepared.
Another aspect to preparation is getting an indication from your core processor what lag time they expect for future conversion. This is particularly important as you determine the amount and time length of retention bonuses; they clearly should cover the duration of the conversion for the operations people.
Acquisitions are very demanding of staff, but they are also rejuvenating. Especially in today's bleak environment, where so many banks suffer losses on a core earnings basis, FDIC assisted acquisitions can be a breath of fresh air. Your people would appreciate being involved in the process, even if it means working harder, and typically find such involvement too be a personally rewarding recognition.
One aspect of any acquisition is the uncertainty. Employees of both companies ask themselves, "Do I have a job?" and, even if the answer is "yes," for how long. As we know, such uncertainty isn't well tolerated by most people, and they fill the void with worse-case scenarios. Reducing the uncertainty is always productive.
For example, make the decision on who stays and who goes very early; if possible, even before the deal is inked. Communicate the decision as soon as possible and offer retention bonuses to key employees to ease the transition. Also, publish a timeline for the integration process, so everyone knows what to expect when. Publish your severance package and all job postings; be as open and transparent as possible. Be candid too, which often means "don't promise no layoffs."
In general, the more frequent and candid the communication, the better. One company I know has an all employee 15 minute call weekly, where the CEO keeps everyone posted on recent developments and reaffirms the strategic direction. What a great idea!
Integrating and meshing benefits is always a painful process. Monetize the benefits rather than discuss the specific examples to ensure that the acquired staff understands the value you bring to the table. All too often, a small change becomes a rock in people's shoe, and they fail to realize that the new benefits are far more valuable than what they had before. They focus on what they lost, not what they gained.
Similarly, integrating cultures is a no-win proposition. I'm a great fan of "best of both worlds," but merging two disparate cultures will only create confusion and grief. One way to support the single culture approach is to pass all the new employees through the bank's orientation program. Of course, this is only effective if your orientation program goes beyond the administrivia and "81 ways a teller can get fired..." Use your orientation program to share the core values of your bank and how they express themselves in daily decision making and customer contact. Clarifying the non-negotiable aspects of your culture will further help the new employees make the decision to stay or opt out.
One good way to help the acquired bank staff to get over the skepticism is to let them try another job within your bank for a period of time without losing the severance package opportunity. This way they can see for themselves that your description of the culture is real, and draw personal conclusions from their experience.
On the accountability side, clearly goaling customer retention, rewarding for performance along the pro-forma financials and continuing disciplined "look-backs" will all facilitate successful FDIC takeovers and other acquisitions as well.
There is much more to successful acquisitions than the points made above. However, in today's world of minimal lead time between opportunity and deal consummation, and where the assets go down the elevator every night, focusing on the human element integration is more important than ever.