Studies evaluating the accomplishment of mergers and acquisitions (M&A) consistently show how difficult it is to have a successful transaction. The statistics remain unchanged year-over-year in academic research: 70 to 90 percent of all deals fail to achieve the deal thesis or intended benefits—financial or operational—in the expected timeframe from the announcement of the deal. Yet, even with the deck stacked against them, financial institutions continue to be a source of significant deal activity for a variety of good reasons. So, how do you avoid becoming a statistic in an activity fraught with risk?
Begin with the end in mind—your customers. Customers in this case aren’t limited to just the acquired and existing customers, but include those who tend to be your most vocal customers: your employees. All too often, the mindset of dealmakers in financial services is focused on financials, the credit portfolio, and the capacity to gather deposits or market share. They completely forget that there are customers and clients behind all of those numbers, even though lip service may be paid.
Keeping customers front and center throughout the deal-making process increases your odds of success because it shifts the mindset in all phases: diligence through day one. Thousands of decisions go into transactions: name changes, product and service realignment, integration of sales practices, consolidation of back-offices, branch rationalization and new reporting relationships. But where do you begin?
Focus on Current and Acquired Customers
- Analyze and segment the combined customer base during diligence. Not all banks have the same customers. Having an early understanding of the customers who are most important will have one of the greatest impacts on achieving deal benefits for the merger.
- Build a target service model and identify the customer journey during and after integration, based on your customer segmentation.
- Spend adequate time developing and executing tailored customer communication strategies based on your customer segmentation. Beyond regulatory requirements on minimum communications, successful institutions go beyond the typical change announcement and effectively communicate changes to customers in the way they want to receive such communication.
- Develop and monitor customer feedback throughout the integration. Waiting until the call center is slammed over conversion weekend is too late.
Turn Your Employees into Advocates
The biggest failure in an integration is ignoring the employee experience since it is often just as important—if not more so—than the experiences your customers will have. Employees are often your biggest marketing asset and neglecting to include them and keep them informed about the transaction can turn employees into detractors. Don’t do that. Instead:
- Be deliberate with your cultural integration. All too often, culture is overlooked during due diligence and planning, which results in nightmare scenarios later: decision making or alignment is slowed to a drip, detractors rally the masses and slow progress and unsatisfied staff talk to your customers.
- Remember change management 101. As soon and as clearly as possible, give your employees the answer to the question “what’s in it for me?” Difficult decisions need to be made on tight timelines and employee communication of key changes and impacts throughout the integration is crucial; only communicating major changes through a press release, close announcement, and core conversion is not enough.
- Establish a separate team to manage cultural integration and change management related efforts. This team, which is not the human resources department but can include members of it, can focus on identifying potential areas of conflict, assessing leadership strengths and weaknesses, and developing a comprehensive communications plan that engages all levels of the organization.
Create Your Own M&A “Playbook”
Successful institutions have playbooks in place and well defined target operating models ahead of a transaction, which consider all customers, external and internal.
The questions you need to answer to minimize the disruptive and risky nature of a deal are:
- Do you know your customers? Do you know your target’s customers?
- Do you know your culture? Do you know your target’s culture?
- Do you know how you want to serve all customers on day one?
Achieve Tangible Results
By following a customer-centric approach, financial institutions can realize tangible benefits: accelerated decision making, faster integrations and less disruption. Making decisions with a customer-centric view minimizes status quo or one-size-fits-all choices that backfire eventually.
Finally, many banks struggle to meet the expectations of regulators who are looking more intently at integration planning and due diligence during and after the transaction. Robust and thoughtful methodologies around managing the customer experience is something regulators will view as evidence of a well-planned and lower-risk transaction. This can also act as a flywheel for execution speed on transactions for those of you that are serial acquirers.