To merge or not to merge?

The word merger conjures up many different emotions in the credit union space: growth, loss of identity, opportunity, inevitable. Rest assured, your credit union is in control of your destiny to serve your members. When you consider the idea of merging, it is vital to embark on a thoughtful journey to determine what is right for your credit union. After all, it is a forever-decision; mergers are never “undone.” Here are a few key considerations.

Do you have to merge? In most cases, the answer is no. If you “have to merge,” you likely have waited too long to make necessary changes to be ready for the future. Of course, there are a few completely unexpected impacts that can take your options away and fast.  

If you choose not to merge, you may have a tough, yet worthwhile adventure ahead. But then again, if you choose to merge, you will have a tough, yet worthwhile adventure ahead. Bottom line, you will need an honest strategy that will guide your organization to continued success. What made you successful in the past may not serve you in the future. Your key sponsor, community, or field of membership may be very different now. In preparing your new strategy, get all the stakeholders involved and collect any data that you have. You will likely need to make some very difficult choices.  

I propose the following exercise to begin. Prepare a description of your credit union five years from now; the credit union is wildly successful and thriving. Next, describe the key features of the credit union. Then, explain how you got there. This is a great time to dream, as even stubborn constraints can be addressed in five years. Imagine a better location, a new credit union name, improved online banking, a modern core system, a new training program, revamped employee benefits, and the spike in charge offs is behind you. A lot can change in five years. 

Now, you can begin to address the tough decisions. What must you change and what should you change? Complete a thorough review of your products and services. Do they serve your current, and more importantly, your future members well? Do your members use your products and services? Over time, it’s easy to add products and then keep adding more and more. Each one takes some ongoing care and attention. Do you sell unrelated items such as movie tickets, bus passes, or eggs (yes, I have seen eggs sold at a credit union)? What offerings need to be eliminated? Communicate with the members that use them and get rid of them as soon as possible. Look for some quick wins—simple, quick projects that can make a difference and free up resources. 

Let’s be realistic—if you don’t have sufficient scale, you can’t and shouldn’t try to offer everything to your members. Find a few extremely valuable products and services that fill a unique niche in your market. Look for products and services that you can deliver with sufficient revenue to sustain the organization. Use care before adding every cool, new delivery channel that has high implementation and ongoing costs but won’t necessarily capture much member attention or utilization. Unfortunately, the added cost can overwhelm the credit union’s financials. Keep it simple but be creative.  

Should you consider a merger? YES, the key word being consider. You may find that it’s a viable option to meet your objectives. Go back to the picture you painted for your credit union, what might that look like as part of a new organization? 

If you are going to consider a merger, evaluate what is truly special about your credit union. Everyone says “service,” so dig deeper, much deeper. What are the most important differentiators about your credit union? What is very, very important to preserve as you combine with another credit union? Is your name and logo extremely meaningful to your membership? If so, seek to maintain it. For example, you could be referred to as “Trusted Community Credit Union in partnership with Neighbors Credit Union.” Is there a product or service that uniquely serves your membership? Why not seek to expand it to the combined membership. What about a valued event? Are you a sponsor of an annual event that connects you with the membership? Seek to expand the impact. What do your members tell you or their friends and coworkers about your credit union? Be flexible in discussions with the leadership of the other credit union, while insisting on preserving the most treasured parts of your credit union.  

What about the numbers? When you consider a merger, it’s essential to evaluate how the numbers work out. You need to prepare pro-forma financial statements. Remember that the numbers cannot build a successful merger, they can only kill a bad one.  

Do the two credit unions complement each other with culture and style? Share your credit union’s story with your merging partner. Look for informal ways to interact with the other credit union’s staff and board and listen to their story. Every conversation can give you insight into their values.  

One significant, long-term advantage of a merger is that you can spread organizational costs (technology, compliance, audit) over a larger pool of members. 

Bottom line in a merger, it’s about the people—your members, your staff, and your board. Great care must be given to each group. What will their future look like? Be realistic, honest, and transparent. If you get the people stuff right, all the other “stuff” will work out. If you get the people stuff wrong, nothing else matters. Even if you cannot keep all your staff, you need to treat them very well. Communicate with them and be as generous with severance and benefits as possible. Look for opportunities to honor longtime employees and board members. 

Do your board members want to continue to serve? Some may want to continue, and others may find that it’s time to conclude their service. Consider seeking a Director Emeritus position (a one-year, non-voting position) to stay connected throughout the transition. Realistically, neither credit union should want to combine everyone from each board as it simply becomes too large to be effective. Anticipate one to two voting board seats and one to two non-voting Emeritus seats.   

Throughout this entire process, be certain to communicate as much and as frequently as possible. You cannot communicate too much about changes at the credit union. Share information and provide an explanation of why. Avoid non-statements like, “To serve you better, we are discontinuing this service.” Instead say, “We have had to make some tough decisions to discontinue several products that simply don’t bring value to our members and are no longer cost-effective to offer.” 

You have a very big decision to make in choosing whether to pursue a merger. Once you have completed the journey of determining your credit union’s future, the hard part is done. There are lots of details to address with the implementation of either choice. These efforts are not easy, but they are rewarding and create the legacy of your credit union.  

As a trusted partner, Corporate Central has helped many of our members navigate through mergers. We understand the complexities and uncertainties they can bring. Our aim is to help credit unions, no matter what challenges they are facing. Our team has compiled Merger Resources, including helpful FAQs, as a resource for all credit unions. Learn more about our support for credit unions and our flexible membership options at corpcu.com.