Credit union mergers can be sweet dreams, ugly nightmares, or anything in between.
In the best-case scenario, the merging credit unions fit together well, the emerging credit union is better than either one was before, and members ultimately reap the benefits.
Some merging credit unions, however, “end up beating on each other like two boats tied together in a storm,” observes Chris Oldag, chief lending officer and vice president at $1.1 billion asset Pacific Service Credit Union, Concord, Calif., who was involved in several mergers at another institution.
It’s no wonder that a dark cloud hangs over the topic of credit union mergers. People look at it as a “big, bad discussion in the industry,” says Tony Ferris, partner at The Rochdale Group.
But he urges credit unions to consider a brighter view. A merger is a strategy to consider, nothing more or less.
“I’m a proponent of looking at a merger regardless of whether you act on it,” Ferris says. “Even if credit unions elect not to merge, they oft en identify opportunities to combine their purchasing power or collaborate on other initiatives. They discover business opportunities simply by going through the merger analyses.”
Following these seven guidelines increases the odds of achieving a successful merger:
1. Spell out expectations.
Ferris advises credit unions to take this step long before merger negotiations begin. Both parties need to ask some basic questions: What are the opportunities? What do we want? What will we gain? What are we willing to give up?
By weighing such questions early on, credit unions “will have a predefined strategy as to what fits their business plan,” Ferris says. Skipping this step is the most common mistake in mergers, leading to decisions that “tend to be emotional rather than rational.”
Credit unions that do such early strategizing are far more likely to shape a merged organization destined to succeed. Ultimately it will attain greater market share, stronger membership growth, and increased products per member, Ferris says.
But, he warns, “If you merely put two organizations together, you end up with duplicative costs and expenses.”
Clarity about a merger’s purpose is critical, agrees Jennifer Lehn, executive vice president/chief operations officer at $1.2 billion asset Numerica Credit Union, Spokane, Wash. Numerica has pursued mergers to expand into new geographic markets and—in the case of acquiring a failed institution—because it was the right thing to do for the credit union movement, she says.
“Know at the beginning why you’re doing a merger,” Lehn advises. “That helps manage everyone’s expectations along the way.”
2. Create a roadmap.
Oldag depicts a merger as a “massive array of tangled wires that must be carefully unplugged and re-plugged in to preserve members’ relationships with the surviving entity.”
He’s not talking only about the physical wires that hook up systems, but the many ways in which two organizations must connect to merge into one. Oldag advises building a roadmap for this undertaking and following it methodically. That requires agreement at the outset about the roadmap.
Decide in advance, for example, which products and back-office systems will survive. Which credit card program or auto lending solution will you go with? Which data processing system has the capacity to take you into the future?
“You need to figure out how to wire the two entities together,” Oldag says. “Don’t try to run two parallel organizations.”
NEXT: Be realistic about potential changes