Bank M&A

You’re Buying Their Branches. Now What?

Editor’s note: This article has been changed from an earlier version.9-3-14-crowe.png

The number of branches changing hands is on an upswing. According to research by SNL Financial LC, nearly 2,500 branches either changed ownership or are slated to change ownership as a result of announced and completed open-bank, branch and Federal Deposit Insurance Corp.-assisted acquisitions during the first seven months of 2014, compared with 2,239 during all of 2013.

As the state of the acquisition market continues to improve, it can be useful to think about what happens with the acquired branches after the deal is done. Getting the most value from acquired branches often depends on management’s ability to look beyond tactical issues (such as branding, integrating systems, updating policies and procedures, and onboarding employees) and address issues that are more fundamental—and more strategic.

Here are some principles to keep in mind.

Measure Value—Not Just Activity
When evaluating a newly acquired branch, traditional metrics—such as account openings, deposits, and sales per employee—might not present the complete picture of a branch’s value to the institution. This fact is especially true in today’s banking environment, where more and more transactions are conducted electronically.

Although overall traffic in branches continues its downward trend, branch location remains one of the top three selection criteria that customers cite when they consider a banking relationship. They might visit the branch infrequently, but they still want to know there’s a physical facility nearby if they have a problem or a complex need.

As management evaluates newly acquired branches, it’s important to remember all three roles that brick-and-mortar branches perform: sales, service and customer retention. Slow sales activity or a lack of deposits can obscure the overall value that a branch contributes to the institution as a whole. This value encompasses a variety of factors, including new products sold, processing transactions for customers, customer account retention, and community visibility.

Evaluate the Fit
In addition to branch value, management should analyze the potential difficulty of integrating the new branches. Again, management should look beyond technology and systems integration alone to consider the prevailing sales and service cultures at the new branches.

These are some critical questions to ask: How do the new branches compare with existing branches of similar size? How well do the new branches’ sales and service philosophies match those of the existing organization? What changes need to be made to integrate the two cultures?

Customer fit should be evaluated as well. How do age, wealth and other customer demographic measures at the new branches compare with those in the existing customer base? Should management consider adjustments to product and service offerings to accommodate the new population?

Remember Your Employees
The ability to retain newly acquired customers depends in large part on how employees react to the acquisition. Customers can detect if the integration is going smoothly from the employees’ perspective. If employees complain about new policies they don’t understand, new priorities they don’t share, or new systems that don’t operate as expected, customers will pick up on their negative perceptions.

Banks with extensive experience in acquiring branches typically have well-developed integration protocols and project management checklists for managing the transition. But successfully integrating branch personnel requires that management move beyond the project checklists to connect with staff on a deeper level.

The cultural integration of branch personnel should be a dedicated work stream in the overall integration project. Moreover, because salary and benefits are only one aspect of the transition, the responsibility for retaining and integrating capable employees should be assigned to managers in the business operation rather than to the human resource function.

In addition to tracking customer and employee retention, the management team also can use tools such as employee surveys to better understand the issues that are of concern to new employees and to evaluate how well management is addressing those issues.

Take a Balanced Approach
In broad terms, today’s most successful financial institutions are those that effectively manage four general areas of concern: their people, their products, the processes they use and their technology platforms.

As the pace of branch acquisitions continues to accelerate, the most successful acquirers will evaluate and manage their newly acquired properties using those same four considerations. Ultimately, they must balance those priorities in a way that delivers the greatest value to customers and other stakeholders.


Tim Reimink

Jason Bomers