4 Questions Every Board Member Should Ask about Mergers


David Ritter

It’s no secret that merger and acquisition activity is poised to ramp up in the financial services industry as leaders seek ways to manage reduced earnings, offer more convenient service through enhanced digital and physical channels, diversify their geographic base, and improve technological infrastructure.

According to S&P Global, June 2021 saw the highest number of U.S. bank M&A deals since September 2019. Credit union merger activity hasn’t dwindled this year either with the NCUA approving 33 mergers in the first quarter of 2021, compared to 34 consolidations in the first quarter of 2020.

Increasingly, Board of Directors have a vital role to play in setting the strategy for their institutions and proactively planning for long-term, sustainable growth. This starts with evaluating the options available, including potential mergers & acquisitions.

Here are a few of the key questions that should be asked as part of the evaluation process at the governance and executive level. This thought process also happens to align with a board’s fiduciary duty to always act in their key stakeholders’ best interests.

Question #1Is this an opportunity that could increase value for my members/customers?

It’s important for any board member to understand how a merger opportunity could provide important benefits like greater convenience, more competitive pricing, and expanded products and services.

Would this collaboration provide:

  • increased access to advanced technological distribution channels in current and future expansion areas?
  • practical economies of scale allowing more competitive offerings and improved pricing opportunities?
  • an enhanced, more complete suite of products & services?
  • in-person service and superior digitalexperiences that are adaptable and scalable to improve and enhance service?

Question # 2Would this opportunity increase the overall institution’s value?

Evaluate how the proposed opportunity could increase operational efficiency, expand access to human capital, increase and diversify revenue streams, offer geographic diversification, increase relevance, and provide scale.

Would this collaboration provide:

  • an efficient, combined back office or retain multiple operational or “administrative centers” to retain employee talent in areas currently conducting business?
  • access to a greater talent pool, additional career opportunities, and better compensation?
  • lower borrower acquisition costs through greater reach and efficiency?
  • increased geographic and economic diversification to better position the combined institution for macroeconomic fluctuations and long-term viability?
  • a larger organization with the ability to maintain and grow market share?
  • access to a larger asset base and more capital to leverage for member benefit (technology, additional products, member service)?

Question #3 – Would this opportunity increase employee value?

The welfare of employees is often a key concern for boards and senior leadership as they consider merger opportunities. However, a larger organization can often provide more to employees. Consider the potential positive results like retention, increased training, improved career path potential, and  enhanced compensation & benefits.

Would this collaboration result in:

  • additional specialized positions as well as succession plan opportunities?
  • the creation of a larger institution with the potential to remain competitive on compensation and benefits (“Do No Harm” to employees)?
  • new roles, products and services, and expanded training opportunities for employees?
  • a competitive compensation structure with greater ability to incentivize employee engagement?
  • retaining more engaged and performing employees, while also offering a competitive retirement consideration for those at this stage of their career?
  • short term (integration) and long term career path opportunities?

Question # 4 – Would this opportunity increase board and community value?

Boards of community financial institutions are often concerned with potential impacts to the communities they serve. Consider how community involvement, philanthropy and long-term sustainability could be impacted. Would this collaboration:

  • allow the combined organization to increase philanthropic efforts?
  • motivate employees to donate time, ideas, and energy toward community causes?
  • create a larger institution with the ability to maintain long-term relevance and better serve the broader community?
  • enhance governance by retaining representation and diverse perspectives that represent the members/customers served?

As with every decision an institution and its board evaluates, key stakeholders (members/consumers, employees, board and community) should be the central focus.  Whether your institution is taking a proactive, reactive, or preemptive approach to mergers, your initial analysis, and any resulting strategy, should be founded on a predetermined and well-defined value proposition for the members/consumers, employees, the community, the board and the institution to alleviate wasting time, effort, and money. Preparing for non-organic growth opportunities should be an integral part of any financial institution’s strategic plan.

We recommend developing a merger assessment plan using both quantitative and qualitative assessment categories. This methodology may help establish a disciplined approach to effectively evaluate merger and acquisition opportunities.

Want to learn more about M&A evaluation strategies? Contact ALM First.

David Ritter is a Managing Director at ALM First, who works with clients by focusing on both their quantitative and qualitative strategic growth initiatives; whether via facilitating an entire merger and acquisition process, conducting strategic planning, building customized sophisticated yet practical financial scenario analyses models for clients, or creating de novo business plans.

David provides a multitude of advisory services to clients, including merger and acquisition guidance, business valuation and strategic planning. He has worked with credit unions, banks, mortgage companies and CUSOs to help build strategies and move quickly towards their financial goals. From prospecting merger opportunities for clients, to establishing effective financial and operational negotiations for new business, to deal closing and post-merger integration, he is completely hands-on in the entire merger and acquisition process. David also helps clients understand the true value of their business through a wide range of financial valuation services.

David earned his Bachelor of Arts in Business Economics from the University of California, Santa Barbara, his Master of Business Administration from Carnegie Mellon, Tepper School of Business and is a Certified Valuation Analyst.

ALM First Financial Advisors is an SEC registered investment advisor with a fiduciary duty that requires it to act in the best interests of clients and to place the interests of clients before its own; however, registration as an investment advisor does not imply any level of skill or training. ALM First Financial Advisors, LLC (“ALM First Financial Advisors”), an affiliate of ALM First Group, LLC (“ALM First”), is a separate entity and all investment decisions are made independently by the asset managers at ALM First Financial Advisors. Access to ALM First Financial Advisors is only available to clients pursuant to an Investment Advisory Agreement and acceptance of ALM First Financial Advisors’ Brochure. You are encouraged to read these documents carefully. All investing is subject to risk, including the possible loss of your entire investment.

The content in this article is provided for informational purposes and should not be relied upon as recommendations or financial planning advice. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. While such information is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. Statements herein that reflect projections or expectations of future financial or economic performance are forward-looking statements. Such “forward-looking” statements are based on various assumptions, which assumptions may not prove to be correct. Accordingly, there can be no assurance that such assumptions and statements will accurately predict future events or actual performance. No representation or warranty can be given that the estimates, opinions or assumptions made herein will prove to be accurate. Actual results for any period may or may not approximate such forward-looking statements. No representations or warranties whatsoever are made by ALM First Financial Advisors as to the future profitability of investments recommended by ALM First Financial Advisors.

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