Do you believe these merger myths?
By Theresa Witham
A couple of myths surround mergers and credit unions, says Steve Morrissette, adjunct associate professor of strategic management at the University of Chicago Booth School of Business and lead faculty at CUES’ Mergers & Acquisitions Institute, in episode 20 of the CUES Podcast. Here are two and why they’re not for real.
Myth 1: Only sick credit unions merge.
Why it’s not true: In many industries, mergers are a sign of success and strength, Morrissette says. A current merger and acquisition trend outside the CU industry shows that firms are merging to narrow their focus. “Thirty years ago, you would see mergers where very different kinds of companies would come together,” he says. For example, at one time Pepsi owned Taco Bell and Pizza Hut.
Now, “instead of bolting together very different businesses into sort of a strange collection, we see businesses doing acquisitions and investitures to focus on their core business.”
“The research has shown, Wall Street’s view is, and best practices of the industry are right now that acquisitions that help you focus … seem to get better results,” Morrissette says.
For credit unions, considering mergers as part of the strategic planning process is a sign of forward-thinking by the board, he adds.
Myth 2: You need to be $1 billion in assets or larger to survive and thrive.
Why it’s not true: Yes, the cost to run a credit union is increasing. Driving the increase are: new competition from non-banks like PayPal and Apple Pay; consumer expectations for new technology that raises the bar for what CUs need to deliver; necessary investments in security to protect member data; and compliance.
“We are seeing some credit unions realizing at their size, they can no longer afford to make the investment with technology that they need to serve their members well and to protect their members well,” Morrissette explains.
“But, there’s more than one right size.” “There are multiple sweet spots where you can do a good job.”
How can you know if your credit union is at its sweet spot? Listen to the CUES Podcast Episode 20 to find out. And hear more about this June’s Mergers & Acquisitions Institute, which will help attendees formulate a strategy, exploring and analyzing mergers, acquisitions and alternatives like strategic alliances, joint ventures and credit union service organizations.
Theresa Witham is CUES’ managing editor/publisher.