Six Priorities for Successful Post-Merger Integration

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Is your bank properly resourced for an efficient and effective post-merger integration?

Most banks head into post-merger integration with long to-do lists but find they are not equipped with the people, processes and technology integral to achieving valuable post-close results. Managing data, applications, and infrastructure to integrate the target company to drive the return your institution is expecting is critical to the merger’s success.

Depending on the scope and scale of each transaction, the first 120 days can vary greatly. Boards and executives should keep these six priorities in mind when planning the days following the merger for a smoother transition to full integration. A well-executed and communicated plan avoids delays, unnecessary costs and long-term unfavorable consequences.

Document everything, assume nothing. Memorialize the value creation strategy. What is the integration approach? Where is the value? And what’s the time frame to realize this value? When a bank defines these goals, it allows the integration team to set the right priorities. Communicate it and then communicate it again, and again.

Prioritize consistent communication between key players. The right hand needs to know what the left hand is doing. That does not mean constant meetings between every member of the integration team, but the moving pieces — for example, the merger and acquisition leaders, operations and the finance team — must regularly sync. Boards need to set an expectation for communication cadence early.

Agree on the integration approach. Is this acquisition an absorption, holding, value creation or integration? Agreeing on what the end game looks like creates a solid, common vision and strategy, quiets the noise around non-priorities for the near term and universally defines what success looks like in zero to 90 days, 90 to 120 days and beyond.

Realistically assess team skills and what’s missing. In most banks, everyone on the integration team has a day job and few have the experience or bandwidth to handle onetime tasks and niche elements of M&A, including core system conversions. For most banks, this may be the first time they’ve been through the process, or the last deal was years ago. If your institution doesn’t have time for training, consider contracting outside talent that regularly performs these types of transactions to handle your institution’s integration efficiently.

Core system conversion planning. Core system conversion readiness and availability of vendors is a key part of the post-integration plan. This component alone could demand a separate team of bank personnel from both organizations. Use this time to review your technology vendor contracts.

Understand (and respect) the culture. Every transaction will affect people: employees, customers, shareholders, and vendors. Recognize the impact, plan for it and communicate what you know when you know it. Focus on the value creation for each audience.

As early as possible, rightsize the project team with a trusted advisor that understands the nuances of the banking industry, has nimble processes, a broad range of knowledge and expertise, and most importantly — the ability to execute.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader. CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer. Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. 

Build vs. Buy: How to Crack the Digital Wealth Management Sector

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The wealth management industry has been a significant source of fees for many banks in recent years. As innovation in the sector has resulted in the development of a plethora of digital asset management solutions, including so-called robo-advisors and data aggregation applications, a number of banks and other financial institutions (FIs) have taken steps to participate in this emerging market via partnerships or acquisitions. Recent activity in the sector includes Ally Financial entering the space by buying TradeKing, Northwestern Mutual buying LearnVest and BBVA partnering with FutureAdvisor. Leading robo-advisor firms Betterment and iQuantifi have also taken part in the trend by inking partnership agreements with banks.

Some large FIs have taken a different approach to entering the market, choosing to build their own fintech applications instead of buying or partnering. Firms taking this tack include Schwab, Fidelity and Vanguard, all of which have created their own robo-advisor offerings.

An upsurge in M&A activity can be a sign of a maturing industry, and this appears to be the case in the fintech space; after several years of breakneck growth, the market for digital advisory services seems to be stabilizing. Lending support to the idea that the pace of expansion is declining, at least among business-to-consumer digital wealth management services, is this blog post from industry expert Michael Kitces, who reports that robo-advisor growth rates have dropped precipitously this year to approximately one-third of year earlier rates.

In an interview for this article, Kitces, publisher of the Nerd’s Eye View and co-founder of the XY Planning Network, advised that FIs looking to purchase or partner with a company in the fintech sector focus on aligning any such effort with their core strategy. He suggests they identify the core business model used by the partner or acquisition target and ask how the technology powering that model feeds into the FI’s business strategy: “Is it lead generation? Is it customer retention? Is it expanding wallet share? And will the technology realistically be adopted, by the right customers or prospects, to serve that goal?”

One obstacle banks looking to buy their way into the digital wealth management sector may face is that M&A activity in the industry has lessened the pool of potential acquisitions. Tomas Pueyo, vice president for growth at fintech firm SigFig.com, points out that while buying can allow FIs to accelerate their time to market in comparison with building technology of their own, so many digital wealth management companies have been acquired that those left are mainly newer entrants to the space. While some large FIs have built their own fintech systems, the vast majority don’t, he says, “because they are much less productive than startups at creating new technology and don’t have as strong a culture of user experience.”

Mike Kane, co-founder and master sensei (a Japanese martial arts term that means teacher or instructor) at digital wealth management firm Hedgeable, expressed similar sentiment in regards to the difficulty banks face when competing with startups from a technology standpoint. Along these lines, Kane outlined some of Hedgeable’s latest feature introductions, including “core-satellite investing, bitcoin investing, venture investing, a customer rewards platform, account aggregation, and increased artificial intelligence with many more things in the pipeline.”

The difficulty of competing with nimble startups and the paucity of attractive acquisition targets leaves partnering as the preferred option for banks interested in entering the market, according to both Pueyo and Kane. “The great thing about partnering is that it dramatically reduces cost and time to market,” says Pueyo. “It’s a way to pool R&D for banks with very little cost and risk.” Kane also sees branding benefits accruing to banks which work with innovative technology firms in the sector: “Young people trust tech firms over banks, so it is in the best interest of old firms to partner with young tech firms for product in all parts of fintech,” he said.

SigFig has partnered with a variety of companies throughout its existence, beginning with AOL, Yahoo, and CNN for their portfolio trackers, and more recently with FIs including UBS, the largest private wealth management company in the world. Hedgeable also has made use of the partnership model in building its business. Kane reported that over 50 firms, including both U.S. and international FIs, have signed up for access to the firm’s free API. Hedgeable offers its partners revenue sharing opportunities to go along with the benefit of saving money they would otherwise spend developing their own platform.

Amresh Jain of Strategic Mergers Group, who advises clients looking to do deals in the sector, sees digital wealth management solutions only gaining in importance as new technologies make it easier and more efficient to process and allocate investment portfolios: “The first phase of digital wealth management was focused on the ability of robo-advisors to automate the investment process. The next phase, in my opinion, will see human advisors increasingly integrating their efforts with digital wealth management solutions to provide an enhanced client experience.”

Strategic Thinking: It Has Never Been More Critical

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5-19-14-wipfli.pngStrategic planning has never been more critical to the continued success of any financial institution. After all, the financial services environment continues to be extremely challenging, and these are no ordinary times. Many institutions are thinking about a rebirth in strategy as they get back to the basics and focus on their core business model. As you approach your forthcoming strategic planning initiatives, you will need to focus on several external and internal themes that demand attention and require ongoing, fluid strategic solutions.

Key External Themes to Keep in Mind

  1. A “wave of consolidation” is expected to accelerate. If your financial institution is going to be a survivor, how will you compete successfully? What does that portend for strategy?
  2. The core business model should be examined to decide what strategies will maximize shareholder value and ensure a return on investment. There is a limit to how far expense reduction and recapturing loan-loss provisions can boost industry earnings. At some point, profitability must come from the ability to grow revenue. Margin is not likely to come roaring back, efficiency ratios have remained relatively flat and the increasing regulatory burden and new delivery channels have added to expense. The supposed lower cost of electronic/mobile delivery has not hit the bottom line.
  3. The ultimate challenge is to identify the source of tomorrow’s profitable growth. What markets are growing? Which niches within those markets should the bank target? What are the habits of your customers? What role should technology play?
  4. Regulatory reform has changed the game. At the end of the day, it’s still about our ability to manage risk within a complicated, complex web of regulation.
  5. A distinctive competitive advantage needs to be ensured. Simply put: Why do customers choose your bank?
  6. The key to success is to focus and to prioritize. Reaffirm what your institution does really well and build the strategic direction on core foundational strengths and on the most significant opportunities. Motivated execution of strategic priorities equates to sustained bottom line performance. Implementation and execution of a well-developed strategic plan will significantly enhance earnings.

Key Internal Themes to Keep in Mind

  1. Strategic planning should result in sustained bottom line performance and should be the highest yielding annual investment a financial institution makes.
  2. The planning process has a defined purpose: To help an organization focus its energy on clearly aligned goals and to assess and adjust strategic direction as appropriate in a dynamic, rapidly changing environment.
  3. The process must be customized to meet the unique needs of each organization. A “cookie cutter” process or “glorified budgeting” meeting will not produce forward-looking strategies, nor will it maximize shareholder value.
  4. Strategic planning requires discipline and a focused, productive planning meeting where questions can be raised and assumptions tested. The leadership challenge is always about making choices. As we frequently say, “If you emerge from a planning session ‘exhausted…but invigorated,” you have likely had a successful session that propelled needed action and a renewed commitment to aligned results.
  5. Organizational structure needs review. Look forward, not backward. Pretend you are starting from scratch. Reaffirm what works and what does not work for your organization.
  6. Leadership does matter. In fact, it is all about the “M.” The quality of management is probably the single most important element in the successful operation of a financial institution. Proactively assess the talent within your organization. Develop a deeper culture of accountability that rewards implementation, execution and sustainable high performance.
  7. Board governance has never been more important. It has never been more challenging to find competent, qualified directors willing to assume the personal risk associated with being on a board.

The Outlook

All components of your strategic plan should align with the strategies the bank needs. Even if you have a well-crafted strategic plan, that is not enough. All critical issues must be addressed in an executable plan implemented within a well-led culture of accountability.

Difficult times can be an opportunity in disguise. On the other side of most challenges lie great opportunities. To survive and flourish, financial institutions must exploit the current opportunities—carefully, deliberately, and thoughtfully.