Before they bless a consolidation, directors need to take a good look at the financials of the surviving credit union. By Charlene Komar Storey This is bonus from an upcoming story about merger finance for board members in the February 2016 issue of CUES' Credit Union Management magazine.
Credit union boards that will lead the surviving institution in a merger have to take a close look at the financials of potential partners to make sure the effects of a merger will be acceptable to the surviving institution, says Stephen Morrissette, Ph.D., adjunct professor of strategic management at the University of Chicago's Booth School of Business and co-lead faculty for CUES’ new Mergers & Acquisitions Institute this June. While managers will have already been considering financials closely, boards still need to make sure the ratios the surviving credit union will operate with as a result of a merger are sufficiently solid. The surviving credit union must decide how much dilution it is willing to accept–and what action it will take if the dilution is greater than it anticipates. The credit union should keep a close eye on several key factors, and run downside scenarios. The scenarios should ask such questions as: “What if we lose x percent of the acquired members?” and “What if we aren’t able to reduce expenses as much as we thought?” and, lastly, “What if there are bigger problems in their loan portfolio than we estimated?” In short, directors should determine how bad things can get before they decide the deal would be a bad decision. Morrissette also notes that timing matters. “If expense rationalization takes longer than planned for–perhaps 18 months rather than 6 months–what will that do to your ratios?” Charlene Komar Storey is a freelance writer based in New Jersey. To merge or not, as well as best practices if you do, will be a topic of discussion at the new Mergers & Acquisitions Institute this June in Chicago.
