With M&A Activity Up, IT Integration Could Be More Challenging

Before Glacier Bancorp executives even think about writing a letter of intent for a potential deal, they’re planning how they’ll integrate the target’s technology.

The $29 billion serial acquirer, with more than 30 years of experience executing deals, updates its playbook after each transaction. But one constant is planning for technology integration very early in the process, says Randall Chesler, CEO of the Kalispell, Montana-based bank. “We’re thinking about the [target] bank, thinking about the capabilities, understanding how they operate and making sure we like the way that they’re put together, and that we can successfully convert how they’re put together.”

Buoyed by faster regulatory approvals and improved stock pricing, bank M&A has rebounded this year. According to S&P Global Market Intelligence, 52 deals were announced in the third quarter, representing the highest quarterly deal volume in four years. As the environment becomes more favorable to combinations, it stands to reason that less experienced acquirers may seek merger partners to beef up deposits or scale up. If a bank hasn’t engaged in M&A in a decade or longer, its board and management team may not fully appreciate the scope of the vendor landscape and the degree to which that can impact integration.

“A lot of conversions 10 years ago were core conversions where the acquired bank was primarily supported by one core provider on all their products,” Chesler says. “Today, more and more, there’s a core and then there are important subsystems supporting different business lines that have been bolted onto the core. It’s definitely increased the complexity of doing it right.”

The consequences of getting the IT integration wrong can be serious, says Brandon Koeser, financial services risk consulting director with RSM US. Those include the increased costs of running two separate systems for a prolonged period of time, erosion to the deal’s value and damaged morale. “You’ll see a significant drain on your people, and they’re really the ones that are driving this,” he adds. “That burden on the team compounds.”

Ideally, IT integration should be completed within roughly six months of closing, but a less experienced acquirer may take longer to get that done. Glacier averages about four to five months post-closing, Chesler says.

Prospective acquirers should first take stock of whether they have the technology infrastructure needed to do the conversion, says Quintin Sykes, a partner with Cornerstone Advisors. “How scalable, how integrated with other systems is your technology? Do you have the reporting that you need to support the business at scale?”

Well before closing, the acquirer should examine the seller’s vendor portfolio and figure out what it may want to keep — say, because the target has a particular product or service that the buyer doesn’t offer, or the seller has a better piece of technology.

“You should be thinking about those tools that your targets have,” says Koeser. “That could be an opportunity for you to get a technology in a more efficient fashion than if you were to start the process with a full system conversion.”

Map out which vendors will stay and which relationships need to be terminated, and create a formal process so contracts don’t auto-renew, Sykes says. Acquirers should watch out for exclusivity clauses or other “gotcha” clauses in vendor contracts, which might limit the ability of the acquirer to run separate systems in parallel for a certain period of time. “Vendor management should be engaged in the integration process to make sure that all those vendors either have a home, or there’s an orderly transition of that relationship,” he says.

Early in the process, the buyer should also identify every staff member who will be involved in some aspect of the IT integration, which will likely include non-technology heads of business, Koeser says. If the buyer is pulling an executive out of their daily role to help smooth the integration process, make a plan so that person’s everyday work still gets done.

The core system gets the most attention in conversations about technology and M&A, but many other systems need to be successfully integrated post-closing. Debit and credit card providers are an especially important piece of the picture, as are mobile and online banking systems. If a customer-facing system is integrated poorly, that could reflect badly on the acquirer, Chesler says.

Data mapping will also be an increasingly important component of a successful technology integration. Prospective acquirers should first know whether their own data providers — and those of their target — are housed on-premises or in the cloud, Koeser says. They should understand where various data points are housed within each bank’s systems, when that information was last updated, and where the data will ultimately be migrating.

“It’s getting more complex because we’re generating more data and saving more data about customers,” Chesler says. “It’s a critical part of this whole process.”