We recently explored how smaller banks and credit unions can tap into technology to remain independent while mergers and acquisitions (M&As) are on the rise. This piece will be exploring the flip side of the coin. If your financial institution is in acquisition mode, you might be wondering what steps you need to take to successfully merge with or acquire another bank or credit union. Here, we’ll look at which critical technology considerations must be addressed to ensure that integrations tied to M&As are efficient and cost-effective.
The critical role of the CTO
The first steps of identifying an acquisition target tend to fall within the hands of a CFO or COO, although CTO involvement is becoming an essential player early on in the M&A process. Technology has become so pervasive, touching virtually every aspect of an organization’s operations—many of which are mission-critical. Leaving tech integrations as a post-merger afterthought often leads to increased IT overhead costs, disjointed integrations and decreased productivity.
Technology considerations for acquisitions
Since technologies can vary significantly between any two companies in terms of status and age, it’s important to assess and understand what software will be merged together and how to maximize value for the larger organization. It’s also a crucial step in creating cost efficiencies.
For starters, one of the biggest challenges that a CTO or IT leader faces during an M&A has to do with the conversion of core software. The incumbent core software must be able to adequately support the size of new institutions and map customers from prior products to existing products. While financial institutions may not feel the need to limit their acquisition targets to companies with the same core software, being aware of what targets’ core software will be is a major assist when planning the integration.
Another huge challenge is obtaining a full picture of what they’re inheriting during an M&A. A majority of the time, CTOs are handed incomplete, expired or no information to paint a proper picture. This pushes the need for an IT partner to fill in these knowledge gaps versus sourcing infrastructure themselves.
Another major goal involves integrating network architecture, so both financial institutions are on similar network systems. Most commonly, the acquired companies will undergo the necessary changes, although leadership may see M&As as an opportunity to evaluate the conversation to a more modern, upgraded cloud solution.
The acquirer must also guarantee network integrity until all conversions are complete. This helps ensure that security remains intact via software patches and upgrades and that financial organizations uphold full-time visibility into their entire network. It simultaneously addresses the question of how financial institutions should manage their data centers and protect redundancy.
Last but not least, a CTO must make important decisions regarding talent and headcount within each IT organization. Leaders must assess employees from the acquired bank or credit union and reassess from the acquirer as well. Culture matters now more than ever—just as much in IT as it does within the rest of the company.
Cost saving benefits to prioritizing technology
In a world that is forever changed due to the pandemic, companies have come to rely on IT infrastructure in nearly every aspect of their operations, making the role of technology in M&As worth prioritizing. Thinking about IT as a strategic priority can result in a great deal of cost savings. Upgrading from legacy voice and network to modern-day IP-based solutions, like SD-WAN connectivity services, help to avoid price increases on antiquated and overly complicated services as they reach end-of-life. Another long-term investment that saves money is reducing hardware, headcount and maintenance requests by converting to cloud applications—these innovative solutions have proven to increase workforce productivity and avoid obsolescence.
Financial organizations who factor in these IT considerations early into the planning of M&A deals will be well-positioned for business gains and overall success.