As the number of mergers permeating the credit union industrycontinues to rise, some CUSOs might be considering following thatsame path.

Because CUSO-only mergers are relatively rare, figures on thenumber of these types of deals are hard to track. More than 160credit union mergers have occurred this year, according to the latest datafrom the NCUA.

John Dearing, managing director at the McClean, Va.-basedCapstone Strategic, a growth consulting firm, said he has beeninvolved in several CUSO merger and acquisition deals with sincethe mid-2000s. His experience has shown that having an approachfrom that examines the benefits of external growth is a goodstarting point.

“There's a quote, 'every company is for sale for the rightequation,'” Dearing said during an Oct. 22 webinar on CUSO mergers and acquisitions conducted by the NationalAssociation of Credit Union Service Organizations. “I reallybelieve that in my heart and soul. In the world of collaborativeefforts, that's not necessarily going to be the only thing thatdrives a deal.”

Before getting to that point, Dearing there are three phases ofthe acquisition roadmap: building the foundation, building therelationship and building the deal. The first phase involvespinpointing the vision and risks as well as assembling the teamthat will be involved in the potential merger or acquisition. Inthe next phase, prospects are researched and selected andnegotiation platforms are implemented. By the final deal phase, aletter of intent and the deal structure are completed.

CUSOs should keep in mind three objectives as they consider apossible merger, Dearing said. First, generate new ideas whenthinking about a credit union or CUSO's strategic growth planningprocess and options. Second, share a thought-provoking perspectiveregarding proactive, growth through mergers and acquisitions; andthird, provide tools for exploration and execution.

Certain CUSO services are primed for more growth including inthe mobile space, and in the audit, security and analytics areas,Dearing noted. There's also an increase in attention from entitiesthat are looking to form partnerships in what he described as thetraditionally sheltered credit union market.

“People are looking to (mergers and acquisitions) as a way totransform the organization and open up a basket of opportunities tothrive, survive and grow,” Dearing said. “They want to enter newgeographic markets, add more services and team up with folks withunique technology to do things faster. M&As are just anothertool in the tool box.”

But merging for the sake of merging can ultimately be a baddecision.

“Overwhelmingly, people will agree to something when theyrealize there is something in it for them,” said Denny Graham,president of FI Strategies LLC, a St. Louis-based strategic andplanning firm. “They don't care what's in it for the credit unionor the person who's selling them this bill of goods; they carewhat's in it for them.”

People buy financial services to make money through higherinterest rates on deposits, save money from lower rates on theirloans or lower fees, and improve convenience with more ATMs andbetter branch locations. Because of this, a potential merger has toaddress whether it can fulfill all of those need, Graham said.

In the case of a credit union merger, is it possible that amerger will be good for the credit union or the members, Grahamsaid.

“Boards and management very clearly think about the efficiencyratios and capital ratios of the combined companies, or about theincreased cost of the regulatory burden that is only getting worse.And they should,” Graham said. “Does the average member care or candetermine how all of this will benefit them? Maybe there will beoperating efficiencies. But back to point one. How do those helpyour members make money, save money, save time?”

CUSOs are formed for a number of reasons; among them, generatingmore loans to boost net income, said Guy Messick, general counsel for NACUSO. A credit union mightalso want to boost noninterest income through alternative financialservices such as investments, insurance and trust services. Thesechannels can pay fees to the CUSO or credit union. Reducingoperating costs and increasing operational expertise are alsoreasons to form CUSOs.

Credit unions considering CUSOs often ask what the successindicators are, Messick said. One measure is integration.Successful CUSOs are able to integrate their products with thecredit union products so that a member can access the products andinformation efficiently as possible, regardless of whether themember obtains the product at a credit union branch, phone centeror web site, he noted.

Other CUSO success indicators include being well capitalized,having a good business plan, having the full support of the boardand staff as well as a qualified CUSO management team, Messicksaid.

All of these factors could potentially come into play during themerger and acquisition exploration phase. Dearing said a big pieceof the process is the vision.

“I challenge you to think about the process for base businessand organic growth and how it can be replicate for externalgrowth,” Dearing said. “Where are you and where are you going. Thiscan be done over time. I'm a strong advocate in approaching thisone step at a time.”