Gaining Competitive Advantage Through Mergers & Acquisitions

In the business world, mergers and acquisitions are often something feared by the masses. Credit unions, however, operate under a different umbrella where these activities should be seen as advantageous rather than detrimental.

As a leader in your firm, you see mergers occurring all around you. In fact, the financial services industry is regularly buying, selling, and blending brands, which could lead you to ask yourself how your company can make an impact in this ever-evolving market. Perhaps you’ve been on the fence about whether to take a more proactive strategy towards mergers. Disruption to the status quo can bring great benefits. Consider the recently announced merger of United Federal Credit Union (UFCU) and Lake Michigan Credit Union (LMCU); once finalized, this will be the largest credit union merger in history.

Using the aforementioned ground-breaking story as a case study, you can scrutinize your own credit union to identify competitive advantages which can be derived from merger and acquisition activities.

Combined Operations

Wall Street mergers tend to result in layoffs and buy-outs of stock that enrich the shareholders’ wallets while often creating a negative situation for the employees and customers. As non-profits, however, credit unions do not experience these negative effects. Rather, they combine resources, taking the best available options from each of the members’ operations. This results in improved technology, better rates, and more branches. Unlike banks that pay shareholders, credit unions simply combine their operations without incurring the acquisition costs. Layoffs seldom happen, and employees often experience higher wages, better benefits, and increased opportunities for growth.

With UFCU and LMCU, for example, 64 branches in seven states will remain intact, allowing leadership, employees, and each credit union’s members to focus on the business at hand without feeling disruptions to daily functions. This merger is planned to close by year-end, and the expedient nature of the process facilitates uninterrupted workflow.

Expanded Footprint

Credit unions are typically renowned in their communities for high-quality service and exceptional care for their customers. A major credit union competitive advantage is the increased footprint that results after a merger or acquisition has been finalized. With the same caring and experienced staff in place, current customers won’t feel negative impacts of the acquisition; the credit union simply increases the size of its neighborhood, so to speak, giving the organization greater visibility and opportunity to win business from big name banks in the area.

The LMCU / UFCU union is an inspirational example of the footprint to be gained from a merger when done correctly. This united front will now serve approximately 500,000 members, ushering in an expansive footprint and excellent opportunity to connect deeper with the newly connected community.

Brand Awareness

When a company’s footprint grows, so too does its ability to boost its brand awareness. This is an opportunity for the credit union to increase its presence in the market, and with the right strategy in place, the organization can gain top-of-mind awareness with an even stronger brand. Because credit unions are more community-oriented businesses than their big-bank competitors, it’s important to approach any renewed branding strategy with the local neighbors in mind. With this, one credit union competitive advantage to be obtained is a fresh and strong brand image that’s ready to be presented to an audience that will likely be very receptive to the possibilities the credit union can offer.

When you choose selectively, the credit union with which you partner will be well-respected in its own community. This allows you to strengthen the new institution’s brand once the deal has been finalized. In the case of LMCU and UFCU, Union Federal Credit Union will gradually become United Credit Union, allowing a gentle transition for consumers while the organization deploys new messaging relative to both formerly mutually exclusive brands.

Economies of Scale

As you evaluate the potential competitive advantages to be gained from a potential merger, bear in mind the concept of economies of scale. As you increase your footprint, you’re distributing your costs of business, which will stay relatively neutral, across a larger membership base. Elimination of duplicate costs, particularly those relative to technology, is another enticing benefit. The greater your membership base increases, the better leverage you will have in terms of rate negotiation, which, in turn, offers a cyclical advantage to your branding, as well.

To paint a clearer picture, consider your current costs attributable to regulatory compliance costs. According to findings recently published by CUNA, an average of 49 basis points of credit unions’ assets contribute to the cost of today’s regulatory burdens. Couple this with, “a median reduction in revenue opportunity of 10 basis points of assets,” and credit unions face impacts equivalent to an average of 40% of employee expenses. Spreading these costs across a larger membership base can help your organization gain a competitive advantage.

In most industries, mergers and acquisitions come with a great deal of trepidation and risk. The unique regulatory environment in which credit unions operate actually gives them a unique competitive advantage where mergers can be a wholly positive experience if these few concepts are kept in mind.