What Credit Unions Need to Know about Strategic Mergers and Acquisitions
With industry consolidation, regulatory changes, and disruptive technology, many credit unions are exploring alternative ways to grow, and some are taking a closer look at strategic mergers and acquisitions (M&A).
Strategic acquisitions are different from credit union consolidations—many of which are driven primarily by cost-savings that result from combining the two entities—in that they focus on long-term growth and can involve acquiring, partnering with or investing in a CUSO or other organization. Strategic M&A is an important tool that can generate noninterest income and enable credit unions to create unique value for their members.
Here are three tips for credit unions considering growth through strategic M&A:
- Begin with strategy.
Your overall growth strategy should be the primary driver and guide for your acquisition. While this is a simple principle, it can sometimes be forgotten in the excitement of the deal. Do not acquire another organization simply for the sake of it. While strategic acquisition can be a powerful and rapid tool for growth, investing in or buying the wrong organization can be an expensive mistake!
- Use a demand-driven approach.
Credit unions should pursue markets before researching individual organizations to partner with or acquire. The reason for this is that selecting the right market is critical to successful growth. The market should have healthy, stable demand for your products or services, and be aligned with your overall growth strategy. We strongly recommend selecting a market prior to identifying acquisition targets or potential partners. Without understanding market dynamics, you may be tempted to pursue what looks like a promising opportunity, only to find that the market is in a serious decline. In addition, market research will help you enormously when it comes to evaluating and identifying potential targets to acquire.
- Remember the human factor.
It’s extremely important to develop a relationship with owners and not focus solely on price or hard-nosed negotiation tactics. Many times, owners view their company as their baby, and convincing them to partner with or sell to you involves much more than just a fat paycheck. Consider the owner’s drivers and motivations. What does he or she really care about? Developing a strong relationship with an owner early in the M&A process will greatly benefit you when it comes to due diligence and negotiations.
Strategic M&A is a tool every credit union leader should consider. Especially in today’s dynamic environment, the right acquisition can help your credit union meet the changing needs of your members and drive long-term growth.
Editor’s note: Written by John Dearing, Managing Director at Capstone, a leading advisory firm focused on helping credit unions and CUSOs grow through proactive strategic growth programs and mergers and acquisitions. Question about our Strategic Link partnership with Capstone? Contact NWCUA’s Vice President, Strategic Resources, Jason Smith, at [email protected].