With so much cash available, and very little return for deposits, it is a natural consequence that financial institutions have been acquiring. TD acquires First Horizon, BMO buys Bank of the West, U.S Bancorp purchases MUFG, M&T takes over People’s United, Webster acquires Sterling, Citizens part of HSBC, Bradesco buys BAC Florida and the list goes on. The reason of course is to get a good return for the mountain of cash.
However, poorly managed acquisition work can have the opposite effect. Expense reduction expectations often require system retirements that don’t happen. Assumed synergies are derailed because the processes of both institutions are markedly different, and no one is prepared to invest in the needed change. Increased market power can only be realized if there is sufficient system intelligence to inform management of where and when this can be achieved.
In reality, following an acquisition there should be four main areas of action:
- Risk Management and Risk Reduction
All of these have implications on the systems used by both parties. Sadly, during due diligence so much emphasis is placed on the historic financial performance and client contracts that areas such as technology are often underestimated. Yet this is the future, especially in financial services. Robotic process automation (RPA) is a perfect example of technology that is underestimated in the financial industry.
👉 Learn more about RPA in banking here!
Prior to acquisition, key diligence items should include historic system stability, capacity prediction, performance prediction, supportability, productivity of contracts, geopolitical risk, fit for purpose and new functionality required. This will help assess any stability issues.
An analysis of the systems portfolios should also be undertaken to determine which systems genuinely overlap and are therefore potential candidates for cost reduction. A simple “clear choice” concept is insufficient in determining the future path as both systems may benefit from a replacement to a new platform that meets the wider needs. This analysis should look at total cost of ownership but have this properly tempered with business fit and acceptability.
In order to achieve post acquisition growth, consideration needs to be given to the ability to data mine CRM systems and customer behaviour, as well as any existing client cross over. This will help to set a realistic expectation and therefore pricing of the deal.
Innovation plans need to be considered so as to eliminate any potential duplication and identify those areas that would benefit from additional resources.
The heavy work however comes after the deal has closed. The establishment of a strong Program Management Office (PMO) is an essential element in ensuring that value is realized within the correct timeframe. Controlling the program of work is not only done at the top level, but rather every business segment affected will also need to ensure it is meeting pre-agreed targets.
If the due diligence was done well then, a clear plan should exist for system retirement and integration. However, the reality is usually far from that, which means that benchmarking the combined organization (current state) and defining where you would like to get to (future state) will be one of the first tasks needed. A second stage to this is full planning and resource allocation. This in turn will then come under the local PMO and roll up into the Global Office.
Once decided, it is time to get on and execute the technical work. In a world of limited resources and with different styles of retention it would be wise to consider breaking the work up between a small group of competent companies, all working within the overall framework of the PMO. This enables you to hold organizations accountable in sensibly managed pieces. It also de-risks the delivery.
Over the years CPQi has had the privilege of working on both pre and post acquisitions for financial institutions. On each engagement we learn as do our clients. The application of these lessons enables value to be created sooner, instilling confidence in the purchase at an earliest possible stage.