Mergers and acquisitions automatically create change for one or both organizations and their employees. Culture and communication are two critical must-dos to ensure a smooth transition. Unfortunately, the numbers often seem to be stacked against the success of most mergers and acquisitions.
But, despite ongoing news reports of the woeful success rate for M&A, Deloitte’s 2018 trends report indicates that M&A success is on the rise. According to the report: “Among corporate respondents, 12 percent said that more than half their deals did not meet expectations, down from 40 percent back in the spring 2016 survey. For private equity respondents, only 6 percent said deals didn’t deliver as anticipated, down from 54 percent last spring.”
That’s good news for community banks that are involved in, or considering, a merger or acquisition. As best practice lessons emerge from the most successful partnerships there are some key takeaways that can help community banks hit the ground running after an M&A. Here we take a look at some of the “big rocks” in terms of areas to focus on, based on the insights of business experts experienced in this area.
Impacts on Staff
Community banks are a little different from certain types of other organizations when it comes to the impact of a merger or acquisition on employees, says Tom Maxwell, chair of law firm Barnes & Thornburg’s financial institutions practice. Maxwell regularly advises on a wide range of strategic transactions for clients including banks, savings associations, credit unions and mortgage companies.
Because community banks have branches that are staffed by front-line facing employees and because most mergers occur because of a desire to expand market area, these front-line employees may not be directly impacted. The acquiring organization will want to connect with these employees as soon as possible to evaluate their skills and make offers to stay on with the organization as appropriate. This should occur as soon as possible, he says, to avoid the potential of losing key employees. Part of this process should also include consideration of, and communication about, the benefit plans for the new organization and how they may differ from what employees previously received.
In other back-office positions, though, there’s a good chance that the merger of two, or more, organizations will result in duplicate positions that won’t be required to run the new organization: two VPs of HR, two CFOs, etc., and on down throughout the organizations. Layoffs are often, for good or ill, a necessary evil when companies merge. Again, connecting with those employees you wish to retain and convincing them that they should stay with the new organization is an important step to take. In some cases, notes Maxwell, senior employees (CEO, CFO) may have contracts in place that must be considered, often requiring a payout of one or more years of salary to the departing executive—CEOs generally receive three years pay, while other executives might receive one, he says.
Taking steps to assist departing employees with the transition, including offering job placement opportunities can help to ease the anxiety—fiscal and emotional—of job losses. There are also certain legal requirements that the acquiring organization must follow with regard to employees who will be terminated, says Maxwell. In most cases, he says, the bank’s HR department will be aware of these requirements—COBRA to retain benefit coverage, for instance.
“The key thing, especially on the employee side, is having good communication early and frequently,” says Maxwell.
Don’t Forget About the Survivors
But in your efforts to assist these impacted employees, it’s important to avoid overlooking another key group—the employees who are left behind who often fall prey to “survivor’s syndrome.”
IMPACT Group works with companies to coach employees and their families through career transitions and provides outplacement support to those affected by layoffs. They offer a checklist for managing the employees who have retailed their jobs following a merger or acquisition. Once layoff notifications are complete, they advise taking the following steps:
- Communicate with remaining employees as soon as possible.
- Schedule group meetings to offer information about the layoff and restructuring of departments.
- Acknowledge the feelings and concerns of remaining employees and communicate concern for those who have been separated.
- Discuss upcoming next steps including meetings to reinforce department goals, roles and responsibilities; and meetings with individuals whose jobs are changing to clarify roles, objectives and career opportunities.
- Be clear about ongoing responsibilities.
- State your availability; answer questions you can, agree to find answers to questions you can’t immediately answer.
Employee issues should be top-of-mind for community banks since their employees are their face to the community.
Issues of Culture…
When two, or more, organizations come together there may not, necessarily, be a culture clash, but there will quite likely be differences between the two organizations that need to be identified and potentially modified from a culture standpoint.
Lars Sudmann, former CFO of Procter & Gamble Belgium, was part of the post-merger integration leadership team after the M&A of Procter & Gamble and Gillette; today he advises other companies on post-merger integrations. Sudmann believes that one of the key reasons for failure when companies merge is cultural issues.
“Ideally, a cultural compatibility is tested beforehand,” he says. But, “after a merger, it is important that people honestly and openly explore and discuss cultural issues. The fist activity for that is understanding. Holding joint sessions to identify ways in which things might be approached differently “are ideal and can be eye-opening,” he says. Getting those issues on the table and discussing steps to address them can help companies move forward successfully.
John Stockamp, director in West Monroe Partners’ financial services practice, agrees. “Don’t just pay lip service to cultural integration,” he advises. “Be deliberate that culture will make its way to customer perceptions in order to retain both employees and customers.”
You can’t communicate too much during an M&A. In fact, even at the point where you’re feeling that you’ve shared the same message over and over again, recognize that your ongoing involvement in M&A activities make you far more familiar with what’s going on than your staff members may be. “Be as transparent as possible,” recommends Jane Scudder, a certified coach, corporate training and motivational speaker who has helped organizations manage through M&A activities, including work with a $9B banking acquisition she was involved with a few years ago.
When possible, she advises, “simply be transparent.” In the absence of information, employees will fill the void with speculation, and misinformation. “Even if the message is effectively, ‘we don’t know exactly what’s going on right now, but hang tight,’ that’s better than radio silence, Scudder says.
Keep in mind that during an M&A, employees seek assurance and acknowledgement. “Acknowledging is one of the most powerful things a leader can do,” says Scudder. “This is because being heard and seen is one of the most desired, foundational parts of being human.” Unfortunately, she says, acknowledgement is one of the things that doesn’t really happen enough during mergers and other big changes. “Leaders are so often consumed with their roles that they neglect to name and speak to the stress that does trickle down to their teams.” Take the time to acknowledge that these are difficult times and that employees will be dealing with stress, change and uncertainty.
Be strategic in your communications, advises Stockamp. “It’s important to remember that not all customers are created the same or have the same communication preferences, so it’s best to figure out high-touch/hand holding (high value) as close to the announcement as possible and be proactive with them,” he says. “Relationships are why customers bank with community banks, and they’ll be much more prepared for a change the sooner that relationship is extended to the new institution.”
After a merger processes also will need to be explored in terms of how the individual companies may have done things previously and how they will do things in the future. This will include a review of tools, processes and procedures with an eye toward evaluating and eliminating, adopting or modifying practices—and technology—that may have previously been in place as the two companies come together.
One significant area of impact for community banks will be electronic data processing (EDP) systems, especially when the banks use different systems. This is an expensive and time-consuming process, says Maxwell, and something that needs to be considered well in advance of the merger. More often than not, he says, the closing will occur before the conversion requiring the use of two separate operating systems for some period of time. In addition, banks need to consider the switching costs that might be contractually in place. Sometimes, Maxwell says, these timeframes will be taken into consideration when determining a closing date. “It’s not uncommon for a target to time a transaction so it’s nearing the end of a data contract,” he says. For merging banks with the same system, the issues will be less significant.
“One mistake that can be made is to be over-achieving and create the very best of everything, modifying each system based on every organization’s best practices,” says Sudmann. Instead, he advises, “decide which process/system to go with from each organization—equally balanced—and then leave the processes untouched to ensure a smooth transition.”
The community banks’ customers will also be impacted. Products will need to be evaluated, reviewed and potentially revised or modified for consistency. Those changes need to be communicated to customers in a way that highlights the benefits they will receive and minimizes any potential burden from a cost or process standpoint.
In addition, marketing materials including signage, website, brochures, etc., will need to be updated with the new bank’s name, logo and messaging and ready to introduce immediately when the closing occurs, or as soon after as possible.
“Product/process changes should be communicated widely,” says Stockamp. “Don’t forget to let the contact center know what’s going on.
Everything and anything that you can do to consider the potential impacts of your merger on employees, customers and the community—and to clearly communicate the many benefits associated with the new bank—will serve you well as you move forward to bring a new level of community banking services to the communities you serve.