Beyond the balance sheet: Preparing for an M&A

As we kick off 2024, aside from all the focus on AI, the Presidential election, and Taylor Swift, a more immediate question looms for bank brand leaders: will the much-predicted wave of consolidation take hold and how can we be positioned for success in the event that it does?

In recent years we have seen less growth-focused mergers of equals (MOEs) or larger mergers and acquisitions (M&A) of scale, but rather purposeful partnering with fintechs, acquiring new capabilities and investment in digital transformation initiatives. However, the environment has shifted and the prospect of M&A impacting your organization is looking more and more likely.

Reading this and having witnessed and even played a role in previous M&A’s you understand more than most that your brand, and the way your employees and customers experience it, needs to be handled with the utmost care and as a priority when considering the prospects of consolidation.

In fact, your bank’s intangible assets must be factored into decision-making on par with your balance sheet. Even if an M&A looks like it would be profitable in the short term on paper, if it doesn’t solve problems for your customers or ease their experience in any way, it will fail to realize the full potential of a seemingly great deal for shareholders.

So, as a leader of your bank’s brand, what do you do? You deep dive into your brand to set your employees and customers up for prosperous years ahead.

Do your brand due diligence

Getting it right requires getting ahead. Instead of reactively doing your due diligence once a merger is already in the works, financial institutions should proactively perform due diligence through the brand lens long before an M&A target is even identified.

This means stepping into the shoes of your customers and employees to understand how an M&A would enhance – or detract from – their experience with your brand. Identify gaps and opportunities a combination may yield and how to optimize.

Essentially, ask yourself – how will a potential merger enhance our brand and serve our customers better?  Your M&A, regardless of financial projections or operational synergies, will only succeed if it is human first, customer led.

The Humanizing Brand Experience: Financial Services Vol 3 report, in partnership with American Banker, explores the core drivers of the consumer brand experience among financial institution customers. In this report, 5,500 consumers share their experiences with their current banks, as well as what’s most important to them in their relationships with financial institutions.

Banks can reference this data to identify where they’re lagging in delivering on the north star customer experience. For example, when asked to rank the top 10 most important emotional attributes, customers ranked “Individualization: Understands my unique financial needs” as number four – up two spots from the year prior.

Similarly, the report shows that convenience is taking on a new meaning to banking customers. Whereas convenience once merely referred to the location of a brick-and-mortar branch, today it is much more nuanced. Convenience for the 2024 financial customer comprises best-in-class financial products and services, as well as monetary incentives and loyalty rewards.

Banks who are lacking the technology or infrastructure to deliver on these personalized and convenience-driven experiences may seek an M&A target to help them enhance these capabilities.

Understanding your brand’s true value

All organizations undergo a valuation as part of any M&A process. But this process often overlooks critical intangible assets- including the value of the brand itself. By performing a brand valuation of both your brand and, once identified, your target brand, you can better understand not just the book value of the deal, but internal and externals strengths the need to be addressed through integration.  The process starts like this:

1. Conducting a financial forecast to predict the target company’s future earnings based on current brand performance and potential growth opportunities.
2. Estimating the percentage of the company’s earnings that can be credited to the power and relevance of the brand itself, as opposed to other assets.
3. Assessing concrete measures of brand strength and relevance in the marketplace to determine the brand’s risk and vulnerability to competition.

Similarly, financial institutions should also consider the brand equity of themselves and the target organization. Brand equity is defined as the value originating from consumer perceptions of a brand. You can calculate you and your target brand’s equity in three core ways:

1. Conducting quantitative research through surveys to measure brand perception, equity, and permission to change among a large audience
2. Conducting qualitative research through in-depth interviews of diverse customers to gain more nuanced insights into brand equity
3. Engaging employees and internal stakeholders in work sessions to provide additional perspectives on brand equity, especially when external research is not possible

Taking the time to thoroughly evaluate both the financial metrics and brand value of a potential merger or acquisition target as well as your own organization provides a more complete picture of the true value of the deal for all involved. Quantifying the brand strength of both parties through market research, financial analysis, and stakeholder perspectives allows you to make better-informed M&A decisions and a roadmap to drive a successful integration process.

Putting your people first

Another critical component financial services organizations should fully assess is culture.

By conducting an in-depth cultural analysis and evaluation  financial institutions can better understand your own culture  while you evaluate potential targets to see if  it’s a cultural fit and what challenges may arise down the line. Culture mapping analyzes the values, experiences, needs, and pain points that shape employee culture within an organization by:

1. Evaluating cultural typologies (both positive and negative) to reveal unmet needs
2. Gauging how culture experiences drive employee satisfaction, loyalty, and advocacy
3. Mapping employee values against consumer values to identify the optimal brand alignment

When banks merge, there is often a clash between the existing organizational cultures. Understanding the cultural values and experiences that are most important for driving employee satisfaction and engagement up front can help streamline the integration process.

You can download our detailed M&A playbook here to learn more about how to implement this framework.

While it’s critical to scrutinize each organization’s cultural nuances before an M&A is agreed upon, banks may also consider implementing these processes entirely independently to future-proof themselves for such an event in the coming months or years.

Getting ahead of an M&A with brand

Rather than scrambling to merge two unique brands and cultures once an LOI is in place and an M&A is underway, financial institutions can get ahead by being proactive. While quantifying your brand value, mapping your organizational culture, and projecting integration feasibility may seem like unnecessary work without a deal on the table, undergoing these assessments ahead of time empowers financial institutions to act quickly and strategically when the right  opportunity presents itself.

More importantly, financial institutions will walk away with greater confidence that any deal will result in an integrated organization oriented around improving experiences for customers and employees alike from day one post-close.

Think an M&A event may be in your future? Set up a meeting with our team to access proprietary and competitive data tailored to your market to help you prepare for and make informed decisions around future growth.

In the process of a merger or acquisition? Download our to learn about what problems will likely arise, what issues you may face, and potential considers, tips, and solutions you can use to help keep things organized and aligned as you navigate arguably one of the biggest business challenges.