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Jun
25
2014

The Benefits (And Dangers) Of Bank Mergers And Acquisitions

By Michael Deely

Nearly every middle-market bank in the industry is looking to either acquire another bank or be acquired, and it’s likely that yours is no exception. Many banks see an acquisition or merger as a chance to expand their reach or scale up operations quicker. Yet, a bank acquisition is not without its drawbacks as well – particularly for the unprepared banking executive.

Amidst the complex paperwork, deals and logistics that come with all mergers and acquisitions (M&A), it’s easy to forget the chief reasons your bank should cash in (or purchase). Furthermore, it’s just as easy to forget the dangers that bank mergers pose to all involved. Below, we explore both the benefits and the dangers of an M&A event for your bank so that you’re aware before your bank loses its way.

BENEFITS OF BANK MERGERS AND ACQUISITIONS

Scale

A bank merger helps your institution scale up quickly and gain a large number of new customers instantly. Not only does an acquisition give your bank more capital to work with when it comes to lending and investments, but it also provides a broader geographic footprint in which to operate. That way, you achieve your growth goals quicker.

Efficiency

Acquisitions also scale your bank more efficiently, not just in terms of your efficiency ratio, but also in terms of your banking operations. Every bank has an infrastructure in place for compliance, risk management, accounting, operations and IT – and now that two banks have become one, you’re able to more efficiently consolidate and administer those operational infrastructures. Financially, a larger bank has a lower aggregated risk profile since a larger number of similar-risk, complimentary loans decrease overall institutional risk.

Business Gaps Filled

Bank mergers and acquisitions empower your business to fill product or technology gaps. Acquiring a smaller bank that offers a unique revenue model or financial product is sometimes easier than building that business unit from scratch. And, from a technology perspective, being acquired by a larger bank might allow your institution to upgrade its technology platform significantly.

Talent And Team Upgrade

While not a factor on the balance sheet, every bank benefits from a merger or acquisition because of the increase in talent at leadership’s disposal. An acquisition presents the possibility of bolstering your sales team or strengthening your team of top managers, and this human element should not be ignored or downplayed.

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