The Art and Science of Successful Credit Union Mergers

Merger. The very word can elicit strong emotions throughout the financial services industry, including credit unions. For some, it is viewed as an exciting opportunity for growth. For others, it is dreaded and feared as a loss of control, quality, and culture. 

However, in almost every way, a merger is a positive change. By building economies of scale, consolidated credit unions are widely considered to be more efficient. They have deeper financial pockets and are able to offer members the financial bells and whistles they can get by banking with the Big Five.

But mergers are not without cost. While they may make sound financial sense, some question whether credit unions run the risk of losing a stake in the communities they serve in their pursuit to stay competitive.

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And that is where mergers often breakdown. But they don’t have to. Credit unions can pursue well-structured, strategic merger growth plans with the help of experienced third-party advisors, so they gain every advantage of merging and mitigate all potential disasters.

Value of a Structured Merger Process

Because most credit union CEOs will only go through one or two mergers in their lifetime, they lack the experience and familiarity with a structured process for this initiative. An experienced merger partner will have a methodology in place to structure the entire process through all four phases, from discovery to integration:

1. Discovery and evaluation. This phase begins after an initial introduction. At this stage, there is no commitment between the two entities other than to have conversations about the possibilities of a merger. They will conduct an exploration to see if a merger will benefit both entities—looking for a good cultural and business goal fit.

1. Due diligence. This phase involves in-depth evaluations of the two entities on several levels, including financial, legal, products, and human resources. This phase includes early- and later-stage steps, all of which explore each credit union’s status individually and as a combined entity. The goal is to understand how the entities would best be combined into one credit union. 

1. Communication and approvals. In the third phase, the credit unions solicit support and generate awareness about the merger plan among their employees, the broader community, the press, and service providers. Approval must also be secured from regulators and the members. How the entities communicate their merger plan is critical, both to ensure a positive vote on the merger and to retain the members and valued employees. To be effective, the communication process needs to be well planned, address the different concerns of each stakeholder group, and be carried out through phase three until well after the merger is completed.

1. Integration. The final phase requires merging every component of both credit unions, including contracts, products, human resources, and more into one entity. It can best be described as the “nuts and bolts” stage. After all the stakeholders have approved the merger, it’s time for the two credit unions to integrate all of their systems, applications, and processes. This includes everything from the core banking systems to the employee payment applications. There are executive contracts to consider, change of control directives to execute, migration issues to address, product training programs to plan, and much more.

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Navigating Merger Politics and Personalities with an Experienced Advisor

Merging with another entity opens the doors of opportunity for credit unions—allowing them to grow without adding costs. However, the process can also be fraught with complications, challenges, and mistakes. In particular, the process can incite politics, personalities, and emotions within communities fearing change.

These issues can be resolved and mitigated with the help of an experienced, trusted third-party consultant to handle the entire merger process with sensitivity to cultural and personality concerns. By partnering with an industry-leading merger consultancy, credit unions can enjoy the many benefits of growing via a merger without the typical headaches and complications of the time-consuming, emotional process.

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