Ensure Your M&A Success

By John Stockamp and Steve Sapletal

It’s not news that achieving a successful merger or acquisition isn’t easy. Thousands of decisions go into M&A transactions: company name changes, product and service realignment, integration of sales practices, compensation changes, consolidation of back-offices, branch rationalization, new reporting relationships, and the list goes on. Every step is done under tight deadlines and the watchful eye of customers, employees and regulators. No other project is as complex as a post-merger integration and poses such a high risk of error requiring a unique set of skills to manage the overall risk.

Yet, this is still a very attractive growth strategy in the banking industry when so much growth is either being regulated away or customers are nibbled away from nonbank competition. And regretfully, the banking industry isn’t immune to making common mistakes such as failing to plan in advance, understand the combined customer base, and proactively managing the integrated employee experience.

Through our extensive experience in assisting companies manage the M&A process, we have identified the following principles as a practical way to mitigate the risk of failure:

  1. Plan the Work and Work the Plan Early

Integrations are complicated and daunting, therefore beginning the planning process early, and committing to delivering a high-value employee and client experience are critical to retaining both. This can be accomplished by establishing guiding principles that are known by all parties involved to provide the baseline for making critical decisions along the integration path. Additionally, visibility into senior management commitment is key to success. They need to be proactive in knocking down roadblocks, allocating resources, and being a strong advocate during execution of the plans.

Most successful mergers establish a playbook before starting a deal. Building the airplane in flight is possible, but most landings are rougher than they need to be. Many strategic decisions can be incorporated into the playbook that don’t need to be revisited mid-deal such as technology landscape, geographic reach, product grandfathering and so forth. Don’t stop there. During the merger documentation of plans, requirements and decisions maintains momentum and provides visibility into how integration goals are being achieved.

It may seem like a no brainer, but finding quick wins early accelerates the overall integrations and provides proof points for customers and employees that this will work. Plans don’t stop at core conversion, they have to include post-conversion monitoring and transition into business-as-usual or risk both customer and employee experience by always being in “conversion mode.” Finally, merger and integration activities need to be appropriately prioritized in the portfolio of existing project. It is rare that anything should trump these.

Lastly, find a partner that has done a merger before, and that has a solid track record. A partner with experience in your industry can greatly accelerate the planning and decision making process while reducing overall risk.

  1. Customers Always First

Not all customers are created equal, so start by analyzing and segmenting the combined customer base. With switching costs almost a nonevent these days, understanding the customers that are most important going forward early will have one of the greatest impacts on achieving deal benefits for the merger. Again these transactions are a lot of work; you should make it worth your while to get the benefits.

It’s important to spend adequate time developing and executing tailored customer communication strategies based on that segmentation. This can be accomplished by defining the customer experience model during the integration and future-state phases. Of course there are regulatory requirements on minimum communications, but successful banks have gone well beyond that in both medium and content to ease the transition in the long-run. You can never over-communicate.

Lastly, develop and monitor customer feedback throughout the entire integration, not just operational day one and beyond. Waiting until the call center is slammed over conversion weekend is too late to address customer feedback and puts you at risk of losing the customers you want to keep.

  1. No Matter What Deal Financials Look Like, Employee Experience Matters!

Be deliberate with your cultural integration. All too often this is over-looked during diligence and planning only to bring nightmare scenarios later on; decision making or alignment is slowed to a drip, detractors rally the masses and slow all progress, unsatisfied staff talk to customers. Be sure to dedicate a team to do a cultural assessment during diligence; don’t wait till the deal closes, as it will be too late.

This falls into Change Management 101. Start by answering the question “How does this impact me?” as soon and clearly as possible. Difficult decisions will need to be made on tight timelines and employee communication of key changes and impacts throughout the integration is crucial; just doing this on press release, close announcement and core conversion is not enough. This is not the HR workstream’s scope. Your human resources team should be focused on critical Day 1 initiatives—making sure employees get paid and are enrolled in benefit plans. Distracting your HR team from these fundamentals could wreak havoc on your organization. Instead, establish a separate team to manage cultural integration and change management related efforts. This team can focus on identifying potential areas of conflict, assessing leadership strengths and weaknesses, and developing a comprehensive communications plan that engages all levels of the organization.

In addition, culture needs to be assessed for both entities, not just the target, to give the integration better odds of success. This assessment should include the respective values for all employees placed on:

  1. Development and Career Growth.
  2. Job Characteristics and Skills.
  3. Organizational Impressions.

To accomplish this develop a network of trained change agents on the operational level. Use a management network to facilitate communication. Encourage each division and location to embrace the future state. Defining the culture you are trying to build and communicating to your change agents will lead to a successful cultural integration. For example, identify ways to measure the employee experience and the “softer side” of the transaction; how many are working on the integration, what are the pulse surveys saying, etc? Think about the people the merger will impact and align incentives that will achieve key integration milestones, customer and employee retention and so forth.

Lastly, establish a plan early for severance and separation as detailed a level as possible (including names) during the diligence. A Merger of Equals (MOEs), whether declared or implied, are inherently more difficult to manage—establishing integration goals and a clear governance structure early is key for the employee experience in particular.

In conclusion, we see most banks have the right skill sets or hired guns to mechanically and successfully put an M&A transaction together legally and financially. After the letter-of-intent, close, and conversion events of that transaction and the deal benefits aren’t realized, the most likely cause of that deal not delivering on the expected benefits is the failure to have comprehensive planning that accounts for the merged customer and employee experience.

Most institutions look at these deals as simply another financial transaction that they are very adept at handling. Instead, they need to be looking at these deals as a transformation that with adequate planning allows for the optimal customer and employee experience to achieve the deal benefits. Dedicating resources to tackling the people-side considerations highlighted above will greatly reduce the risk of complete failure.

Cultural Integration Case Study (How Not to Do It!)

Two institutions choose to merge. On paper it all looks great: comparable customer bases, similar product sets, similar financials and organizational size. The financial, technical and legal analysis showed all the right reasons to merge, so they signed a letter of intent. The similarities ended there.

The missing analysis was how the two institutions employees were going to come together as a new single institution during the integration and beyond. That gap should have been filled with a cultural assessment that mapped the values of each and identified where the gaps were.

Armed with those identified gaps, leadership could have developed a cohesive vision for the culture and values going forward and embarked on a true change management plan to guide the integration. Without this in hand, the integration planning and execution suffered. The bottom line was that instead of facing the culture gaps upfront and early, a process that takes on average 100 days took twice as long. Running two institutions at the same time is expensive.

The situation resulted in differing values on how to integrate and serve customers going forward. In different lines of business, different legacy institution’s values were adopted creating a Frankenstein scenario on technology, product and service decisions. The worst part being that the operating model continued well past conversion and continues to be a point of friction. Inside this combined institution there still continue to be two separate institutions in reality trying to serve one customer base.


John Stockamp is a senior manager in West Monroe Partners’ Banks and Credit Unions practice and leader of that practice in the Pacific Northwest. Steve Sapletal is a director in West Monroe Partners’ Minneapolis office, specializing in complex integration solutions for mergers and acquisitions. West Monroe Partners, a business and technology consulting firm has its headquarters in Chicago.