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 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.
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
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
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.
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.
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