BY IVAN SESELJ
Mergers and acquisitions have become fairly commonplace in the credit union space. The National Credit Union Association reports that between 2003 and 2012, mergers and acquisitions accounted for a 27 percent decline in the total number of credit unions in the United States.
Despite the high number of M&As, credit unions have managed to continually outpace banks according to findings by the American Customer Satisfaction Index, which ranks factors such as interest rate competitiveness, transaction speed, staff friendliness and customer loyalty. That’s somewhat surprising when you think about the history of mergers and acquisitions, which has had its fair share of failures (think Sears and Kmart or AOL and Time Warner), resulting in the loss of both market share and consumer confidence.
Part of the reason credit unions have a better-than-average track record when it comes to mergers is their very make-up. Because their focus is on returning profits to members in the form of higher dividends, virtually all credit unions tend to have a similar philosophy, regardless of their size or origin.
Credit union mergers typically involve a larger, more financially solvent CU absorbing a smaller organization that is experiencing negative financial characteristics – declining membership, negative earnings, declining net worth and so on. Although the exact reasons to pursue a merger differ in each instance, many are done primarily to give members access to better rates and services, including online and mobile banking platforms, surcharge-free ATMs, and a wider variety of accounts and loans.
Obviously, there are a number of considerations for both parties in a credit union merger. While a merger may allow the continuing credit union to grow its assets, net worth and market share simultaneously, it is essential for both organizations to evaluate whether their respective organizational cultures, mission statements and memberships will be complementary. Critical issues pertaining to how the merger will impact product offerings (particularly free products such as savings or loan protection insurance) and whether information technology systems are compatible also need to be addressed.
While readily acknowledging that managing a successful merger is inherently complex, one of the other areas that can significantly improve the odds of a successful merger, if managed effectively, is process management – that is, capturing and managing the critical process know-how of both credit unions to ensure that the new organization will be stronger, nimbler and better placed to perform and grow.