Is your bank merger ready?

Headlines anticipate a rise in bank mergers

Banking industry observers agree that 2025 will show significant growth in bank merger and acquisition (M&A) activity.

Recent headlines highlight the coming tide:

“Bank M&A deal sizes poised to surge in 2025” American Banker

“CEO confidence and stock market performance listed as top factors that should increase M&A activity” Banking Exchange

“How banks are preparing for a possible 2025 M&A boom” BAI

The M&A landscape is heating up and banks should prepare for a surge in dealmaking this year.

Several factors align to create favorable conditions, from lower interest rates to shifts in regulatory policies. According to S&P Global, a strong close in 2024 has set the table for 2025:

“There were 108 US bank deals worth an aggregate deal value of $13.07 billion announced in 2024 through Oct. 31, surpassing the total deal value of $8.95 billion from 155 deal announcements and $4.15 billion from 98 bank deal announcements in all of 2022 and 2023, respectively.”

Engage from a position of strength

A merger or acquisition may present an attractive growth option for your institution. Although mergers offer great potential to enhance income, increase depositor value, and manage volatility more effectively, integrations are intricate processes requiring expertise significantly beyond the typical scope of business operations.

With thorough planning and meticulous execution, your bank can strategically position itself for successful M&As in the coming years.

Increase your bank’s efficiency by improving business processes

In today’s economy, one defined by ever-ascending expectations, an ongoing examination and modification of processes is paramount to an institution’s survival and success. As technology-dependent organizations, banks must continually increase efficiency or risk lagging behind their peers.

Tasks, technology, and tools supporting a process can be redefined – or an entirely new process based on automation can be implemented.

Business Process Improvement evaluations, undertaken by subject matter experts, deliver the insight required to execute more efficiently, create value for customers, enhance revenue for the institution, or provide all three. Senior executives should support an all-encompassing business process improvement initiative to analyze, design, and implement new processes to realize these desirable outcomes.

The resulting rise in efficiency provides a two-fold benefit to your organization:

1. Helps to prevent your organization from becoming the acquisition target.
2. Ensures your institution is well-positioned to acquire and quickly integrate less efficient or synergistic banking organizations.

Drive a comprehensive M&A plan with a target operating model

When a bank improves its efficiency through optimized business processes, it is better positioned to outperform performance targets, accelerate synergy goal achievement, and have a more successful integration experience for the combined institution’s stakeholders, including customers and employees.

Once an institution identifies and closes an M&A deal, comprehensive planning becomes crucial to successful integrations.

To deliver substantial value, efficiency gains available in advanced technology platforms and innovative business processes must accompany new systems. This is the optimal time to apply new best practices and finely tune staffing models to ensure the realization of maximum deal value. This effort should start well before the actual conversion event.

Banking and technology expert resources should collaborate with the business stakeholders to establish the business scope and requirements, followed by designing a blueprint to realize the vision.

A target operating model assists in defining how your bank will implement new solutions, reviews employee roles, and identifies potential efficiency enhancements for business processes using these solutions. The primary objective is to maximize the utility of the modern technology features and functions, ensuring the combined institution achieves optimal efficiency and the highest return on investment.

Realize synergies with outside assistance

Bank technology partners can assist in defining and developing technological synergies that add value to the transaction and/or help keep customer satisfaction high. With the foundation of mutual trust, bankers can ask partners to help them ask the correct questions during technology assessments – both in the due diligence and initial planning stages of the merger transaction.

Ben Franklin may not have had a bank merger in mind when he penned this quote, but it certainly applies. Mergers and their related changes are defining events that require ensuring your own efficiency is in order and meticulous planning through a target operating model to achieve successful consolidation.

“By failing to prepare, you’re preparing to fail.”