8 FOCUSREPORT/Mergers: What’s Next?
There are few deci- sions a credit union leader will be con- fronted with that havea greater impact than a merger oracquisition. Undoubtedly, M&Adecisions will have a lasting effecton a credit union’s membership,employees and the broader community. As with all impactful decisions, a leader may look to data,aligned with strategy, to guidethe decision-making and finaloutcomes. This article will sharesome important considerationsfor credit union leaders, as well assome of the data sources that areinformative in making this sort ofstrategic decision.
When a credit union’s leader-
ship – management, in concert
with the board of directors – de-
cide that a merger or acquisition
is appropriate, the credit union’s
place relative to its environment
changes. This implies that any
merger or acquisition discussion
should be framed as a strategic dis-
cussion. Regardless of what stra-
tegic framework the credit union
uses, an M&A proposition and its
outcomes present risk. They pres-
ent a series of unknowns because
the credit union is moving outside
of its known operations. This is
where data becomes
a critical tool. Data
illuminates the un-
knowns and defines
the ill-defined to of-
fer guidance amid the
fog of uncertainty.
In consideringwhat data to use, acredit union leadermust first answer thequestion that shouldbe asked prior to anytype of strategic decision. What is the endgoal of the mergeror acquisition? Is it to enter anew market? Serve an orphanedmembership through years of indirect lending? If the leadershipcan articulate the “why,” the strategic vision will begin to defineitself. Leadership needs to iterateon the vision until it becomes aclear statement that is easily understood throughout the creditunion.
Once leadership can clearlyarticulate the vision behind M&Aactivity, the right data can begathered and analyzed to helpleadership make better decisions.
For the sake of this article, “serv-
ing an orphaned membership
through indirect lending” will be
used as the “why,” as it is a fairly
common situation. Choosing the
data necessary to inform the de-
cision of whom to partner with in
M&A activities can now enter the
The first questions to ask wouldbe, “How many members are orphaned?” and “Where are thosemembers located?” That initialquestion may not be as simple toanswer as it might seem at first.
Unless a credit union keeps a well-
groomed data lineage of who has
and has not become a member
through an indirect loan chan-
nel, leaders will likely need to use
other, less specific data. Data such
as member mailing addresses can
still return valuable insight into
how many members are in each
area, in addition to potentially or-
phaned members. Plotting these
members on a map gives leader-
ship a clear vision of where those
members are located and how
many of them exist.
Location information, coupledwith established transaction,service and profitability profilesof each member group, will becritical to nominating merger oracquisition partners. By understanding the unique financialneeds of the existing and potential members inhabiting the newservice area, a credit union cantake purposeful actions in servicing the expanded area and helpinform its strategy.
Obtaining a view of this inter-
nal data is helpful, but to drive
down the risk, there is more data
that credit union leaders should
consider – external data. Census
data is a treasure trove for strate-
gic decision-making. With census
data, a credit union leader can de-
velop a data-driven picture of his
or her environment. Census data
of course provides a view of how a
community is growing or shrink-
ing and it can do so in surprising
granularity, drilling down much
further than just ZIP codes. When
combined with the orphaned
member data, these two data
sources will provide a strong indi-
cation of which direction to take
the discussion in next.
In addition to internal datathat pinpoints service density fora given area, and census data thatspeaks to broader trends in population growth, a credit union canavail itself of the many third-partydata aggregators to complete thedata-driven picture. Data aggregators and commercially available consumer databases cangenerate demographic purchasing profiles for specific populations. This third-party data willprovide a comprehensive look atthe spending habits and financial needs of people who do nothave any relationship with thecredit union. This informationis typically available on a variety of levels, from aggregating byZIP code to profiling individualhouseholds.
Now that credit union leadership has obtained signaling information informing where to targettheir M&A activities, these dataand visualization efforts shouldbe completed for candidate M&Apartners. Overlaying M&A partners’ servicing areas over whatthe leadership already knows willhelp sharpen M&A discussionsand quantify the value of the partner. Further, using this data in anM&A decision helps mitigate risk,as it allows credit union leadership to understand if the M&Apartner services an area that isgrowing or declining, based onthe census data.
A merger or acquisition is animportant tool in a credit unionleader’s toolbox. It can doublethe credit union’s membershipand servicing area overnight – aswell as the headaches that comealong with this kind of growth. Assuch, an M&A decision is not oneto be made lightly and should beweighed against other alternatives. While there are few strategic decisions that carry greatergravity than an M&A decision,using data can help reduce theuncertainty. n
Using Data in Your Merger and Acquisition Decisions
Ray K. Ragan (left) and Timothy “Buck”StrasserCo-Founder and FounderClear CoreTucson, Ariz.