Home / Banking Strategies / Surviving three most common M&A challenges

Surviving three most common M&A challenges


From initial discussions to final closing, merging two financial institutions is no small feat. The due diligence phase, which is the most critical component of the entire process, can reveal operational flaws, non-public orders, improper financials and numerous other items that were not apparent in early discussions. Beyond due diligence, however, there are three primary challenges that banks face when they engage in merger and acquisition (M&A) activity:

Managing the legal close date versus the actual system conversion. In most cases, there are two timelines occurring in an M&A situation: the “legal close” date of the deal and the completion of the system conversion of the two financial institutions into a single organization. There is a multitude of moving parts involved and bankers must determine what needs to be done within both timelines and prioritize accordingly. Leading up to the legal closing date, considerations should include:


  • Will signage change?
  • How will products and services be combined?
  • How will the M&A be communicated to customers? To employees?
  • Will branch hours change?
  • What is the status of legal close day certifications? Cash counts?
  • Is help desk support available for the legal close day?


Successfully converting the two systems requires that consistent information is accessible across the entire organization and also a clear coordination of operations for both financial institutions and an effective consolidation of accounting functions. In addition, there should be sufficient system testing and training provided for the personnel, as well as proper review of policies and procedures.

Controlling the culture of the newly formed organization and managing the process of scaling back. Upon completion of the legal close and the conversion, the organization will inevitably take on a new corporate culture. Typically, this is defined and driven by the CEO, who either builds a joint support team or leads by example; management then follows suit.

The dynamics of converging two distinct corporate cultures into one are many and, while some level of clashing is likely to occur, a good CEO is able to manage this transition. Overlay culture immediately; trying to meld cultures will hamper the integration process. Ultimately, those who can turn the ship where it needs to go are the most likely to be kept on board, while those who refuse to help steer must be released. Customer service is number one in surviving a consolidation and everyone must share that attitude.

With an appropriate culture in place, the process of scaling back can begin and, when it does, staff morale should be maintained to preserve a healthy transition and stable environment. Typically, there are two “scale back” dates: first, upon integration of the two banks and then several months following the completion of the system conversion. Executive management should identify the key individuals who drove the successful completion of the conversion and reward them accordingly through compensation or other means.

If staff is to be rightsized, the key is to be proactive and definitively clear about who will be impacted. Employees should understand what their role is and what their future with the organization will be as early as possible. When this is not done, morale often deteriorates quickly and poses more problems for the bank.

Having a solid “roadmap” or project plan for the consolidation. Banks need to make sure they have a detailed project plan in place for the entire consolidation, which includes the legal close and the system conversion, as well as human resources, staff communications, client communications and branding. Typically, the core processing provider will provide a project plan for the actual system conversion. Too many times, this is considered by the bank to be everything it needs, but that is not the case.

A project manager or team should be assigned by the bank to take the lead in developing a detailed plan and coordinating the completion dates for those tasks. Some of the most important components include:


  • Regulatory applications and governance
  • Capital and shareholder planning
  • Facilities and consolidation
  • System comparison and selection
  • Bank branding strategies
  • A schedule of fixed assets
  • Financial consolidation strategies
  • HR benefit analysis and reassignments
  • IT strategies
  • Contract review


The plan should be monitored and updated on a weekly basis at a minimum. Sometimes, a bank will use the project plan from the core processing provider as a basis for its final plan, but it is also acceptable to incorporate key milestones from the provider’s plan into the bank’s plan.

The banking industry is facing a “new normal” over the next five years, with the total number of banks continuing to decline on an annualized basis, mostly through consolidation. While our industry has seen a recent uptick in de novo banks, this will certainly not outpace the rate of consolidation as bankers struggle with the reality that the cost to open a bank (a minimum of $25 million in capital backing) is far less than the amount of assets a bank needs to absorb regulatory costs and remain competitive (at least $500 million).

In facing this “new normal,” bankers must avoid complications during all stages of a post-M&A integration. It is essential to establish a transition team with clear direction and the authority to make decisions and then communicate regularly with all members regarding goals and tactics. Thinking beyond the due diligence process and having a team in place executing against a comprehensive acquisition playbook will go a long way toward ensuring that your bank’s M&A event is a successful one.

Ms. Razook is chief executive officer and founder of Palm Desert, Calif.- based RLR Management Consulting. She can be reached at [email protected]