That aha moment made Petersen understand that trust in any successful M&A deal is not only important but essential.
“In hindsight, I realized that trust had been an issue in the mergers Workers’ had been involved with in the past that didn’t happen,” said Petersen.
This insight and many others, including best practices on how credit unions can ensure a successful merger and acquisition, were shared during a Credit Union Leadership Forum webinar last Wednesday. Petersen was part of a panel of credit union M&A experts that included Stuart R. Levine, chairman/CEO of Stuart Levine & Associates; Guy Messick, partner for Messick & Lauer, and Shawn Gilfedder, CEO of the $293 million McGraw-Hill Federal Credit Union in East Windsor, N.J.
A decade ago, there were 10,000 credit unions. Today, there are less than 7,200.
These figures in large part are due to M&A deals, and it’s a trend that experts see continuing for some time. Although the M&A process is complex and challenging, Credit Union Leadership Forum experts offered advice on the critical M&A steps that can help CEOs succeed.
Petersen, who has been involved in about nine mergers over the last 16 years, said that in addition to trust, M&A deals are also about social issues.
“What drives M&As are the CEOs and the boards of directors. A lot of credit union board members take a lot of pride in their credit unions and they take a lot of pride in their board seat,” he said. “And that is something that they really don’t want to give up."
Levine, who leads an international strategic planning and leadership development company, said it is also very important to gather independent data from the appropriate board members to identify the appetite for the merger from the two respective boards.
“That independent review and listening process of the boards, CEOs and senior leadership tells you very early–before you commit to large sums of member resources, time and energy–what the reality [of the merger] will be and what will the opportunities look like for the proposed merger,” Levine said.
Once both boards give their CEOs the green light, Messick said the initial merger agreement, contingent upon the due diligence process, details the major hurdles that need to be addressed in order for the merger to be approved by both credit unions. The due diligence process should review and resolve leadership and staffing issues, the board structure, operations, branches, vendor agreements, loan portfolios, deposit products, employee compensation and benefits, including termination procedures and incentives to retain key employees, accounting, legal and reputational issues.
It’s also important for both CEOs to develop a clear and concise strategic communications plan that will provide regular business updates with every board member, said Levine. While confidentiality is important during the merger process, the communications plan also should include messages for employees and members so that they will understand why the merger is important.
In addition to a coordinated communications plan, it’s also important to secure competent legal counsel to ensure state and federal filings are completed accurately and timely.
Gilfedder suggested credit unions consider developing an M&A strategy even though they may not have any current plans today to pursue a merger or acquisition because it can help them execute a transaction effectively if and when that time comes.
“With compressed margins, tighter yields in the marketplace, increasing expenses and increasing compliance and regulatory burdens, which may force institutions to find a strategic partner so that it doesn’t become an acquisition, but it truly becomes a merger and a collaboration so that the heritage of your organization can continue to perpetuate within the new entity,” said Gilfedder.