It turns out credit unions and banks don’t have to be like oil and water, and a new merger consultancy is ready to help them mix.
Achieva Credit Union, a $1.5 billion institution based in Dunedin, Fla., has formed Achieva Merger Services, a mergers and acquisitions consultancy specializing in credit union-bank mergers.
The new unit arose from Achieva’s experience in acquiring banks, including its deal with the $165 million-asset Calusa Bank of Florida in 2015, which is described as the first “whole-bank” acquisition of a bank by a credit union in the nation.
The new consulting group will help credit unions and banks through the cross-charter acquisition process, including identifying acquisition targets, due diligence, pricing analysis, merger applications, regulatory advice, acquisition accounting, and integration of operations and technologies.
“Our acquisition of Calusa helped spark interest nationwide among other credit unions who see an opportunity in buying banks, and vice versa,” said Achieva Executive Vice President Dennis Holthaus, who is now also leading the new consulting group. “We’ve gone down this road before, and now we’ve gathered the experts and the resources to find these opportunities and execute transactions properly.”
Staffed by current Achieva executives, who can also tap legal and other specialists as needed, the new group is prepared to serve financial institutions across the country, not just in the Southeast.
Though the Calusa deal is the only direct, public experience with cross-charter transactions, Holthaus noted that both he and the credit union have other relevant experience it is tapping, as well.
“While Achieva has closed one transaction, it has done due diligence on two others but decided not to move forward [with them],” Holthaus said.
Moreover, prior to his tenure at Achieva, Holthaus’s more than 37 years in banking included closing about a dozen bank M&A transactions on both the buyer and seller side.
Since the closing of the Calusa deal, a number of community banks have expressed interest in finding out how they can be acquired by credit unions, Holthaus said, because it can greatly expand the number of potential buyers. That such deals would provide a bank’s investors with cash, as opposed to stock in yet another bank, also appeals to some, he added.
For credit unions, such deals offer geographic expansion, and even beefing up the branch network in an existing territory. It can also bring in fresh talent, including bank officers with business lending experience.
Typically, Holthaus believes such deals make sense when the community bank is smaller than $300 million in assets, and the credit union is larger than $500 million in assets.
Guy Messick, a partner at Messick Lauer & Smith PC of Media, Pa., which has provided services to credit unions and CUSOs around the country, said the principal advantage to credit unions in acquiring bank assets is to accelerate member growth and, in some cases, establish an immediate local presence in a new area of expansion.
“The typical bank acquisition targets are community banks due to size considerations,” he explained. ”The bank’s motivation to sell typically comes down to a business decision to exit a segment of its market or the means to recover value in the total business with tight margins.”
Michael M. Bell an attorney at Howard & Howard, of Royal Oak, Mich., which specializes in mergers and represented Achieva in the Calusa deal, said there have been 16 credit union acquisitions of banks that have closed and a few more announced.
And interest is growing Bell added, noting that he is currently working on at least 10 more transactions, though not all of those will come to fruition.
While the ready cash is frequently cited as a top lure for banks wanting to be acquired by a credit union, another draw is the CU proclivity for keeping staff instead of the post-merger layoffs so common outside of credit unions, Bell noted.
But there are still a number regulatory issues involved in such deals.
“Some states have very clear rules allowing these kinds of deals, others do not,” Holthaus said. “We think states like Florida, Alabama and others will be among the leaders for these deals.”
Moreover, federal regulations for federally chartered credit unions do not currently allow a “whole bank” acquisition, so transactions must be structured as a purchase of assets and assumption of liabilities.
But there may be political ramifications, as well, suggested Keith Leggett, a former American Banker Association lobbyist who runs the Credit Union Watch blog.
“What is the purpose of the tax exemption if you have tax-paying banks being acquired by tax-exempt credit unions,” Leggett asked.