From California to Florida, credit unions continue to consolidate. Dennis Dollar, founder of the Birmingham, Alabama Dollar Associates, recently said he has changed his national credit union merger forecast from "one every business day," which has been the pace since 2000, "to three every business day over the next 18 to 24 months."
Conventional wisdom dictates that a merger should be completed as quickly and painlessly as possible. This approach is neither logical nor prudent. "Quickly as possible" without expertise and oversight more often than not results in a merger that is as painfully and costly as possible.
NCUA and the respective state-level Department of Financial Institutions' (DFI) stance is to oversee a merger so as not to be liable - avoiding the depletion of its reserved funds. These governing bodies strongly recommend that larger credit unions absorb fledging, smaller credit unions. As the song goes, "matchmaker, matchmaker, make me a match."
Once NCUA or the DFIs successfully make their case, they want the merger to take place as soon as possible before the credit unions can change their stance. Often the expectation is that a merger should take three or four months to complete. This can be an overwhelming process.
Study the CU to Be Absorbed
In-house teams will study the credit union that is to be absorbed. In turn, they develop and deliver project timelines based on perceived critical issues. If within this period all issues are not addressed then significant problems persist.
If the credit union can't bring their capital inline with auditor recommendations, they will likely be passed over. Then a new game of matchmaking, a courting period, begins; a process that includes paring CEOs and board members. At the same juncture technological applications, programs and platforms are investigated but only at a high level leaving many stones unturned.
Consider Third Party Facilitation
It is during this critical time period that a credit union should consider speaking with a third party to help facilitate the merger process. This approach can save the credit union large sums of money and ensure a higher degree of member transparency.
When two entities collapse into one there is a redundancy factor that is not only overwhelming but costly. There are two of the following: corporate riders, core vendors, online and batch electronic delivery channels (including ATM and card processors), online and bill payment processors, workflows, procedures, and the list goes on.
In essence, a larger credit union considers the merging of technology and product as a liability to gain a new member base and a book of business. Yes, a merger will bring new members to the fold, but those members can abandon ship at any point during a messy transition, which makes the merger transparency process all the more important.
Surprisingly, given the high stakes, CEOs normally do not budget for a third party to oversee this intertwined, varied and complicated process best characterized as a merger. At the end of the day, however, it comes down to sustaining members. There is no room for miscalculations, especially in this market.
If a third party consultant is hired, savings, of course, depend on the size of the credit union. The consultants' price and approach is relatively fixed. On average, best practices require a three- to six-month process. The ballpark cost for a consultant is easily mitigated by their re-negotiation expertise with existing vendor contracts, which can net hundreds of thousands, if not millions, in savings over the long haul.
All too often things go wrong during a merger. It is a consequence of juggling too many unfamiliar balls in the air. If a juggler can effortlessly keep five balls in the air, how is that same performer expected to be thrown three more balls and not drop a few? It is important to keep in mind that it is the member who is experiencing this performance or lack thereof. If the balls drop, so do their perceptions and loyalty to their credit union.
Avoid Having to Apologize Later
Why send letters of apology to members because the core system or other delivery channels are not functioning properly post-merger and thus failing to meet member expectations? Rather, a credit union could, and should, proudly disseminate letters to members celebrating a successful streamlined, transparent merger.
Sabeh F. Samaha is president and CEO of Samaha Associates, a consulting group that works collaboratively with financial institutions to help improve business processes by optimizing efficiency and increasing revenue opportunities. For info: (909) 597-2020, firstname.lastname@example.org or www.ssamaha.com