Banking M&A Quick Takes: merger of equals

Elizabeth Kaske, EY Americas Strategy and Transactions Buy & Integrate Leader, and Dorree Ebner, EY Americas Financial Services Cross-Service Line Leader, discuss what banks can do to plan for successful M&A in the current environment.

Elizabeth Kaske: In light of recent bank failures, there’s been a noticeable uptick in regulatory scrutiny. How are banks responding to these pressures in their M&A strategies?

Dorree Ebner: Recent bank failures have indeed put a spotlight on the need for greater stability in the banking sector. Regulators are paying close attention to how banks manage their venture investments and the diversity of their credit portfolios. In response, banks are re-evaluating their M&A strategies to align with these regulatory expectations.

Elizabeth: Strategic choices can, of course, vary widely depending on market conditions. What specific deal strategies are banks considering to navigate this environment?

Dorree: Small to midsize banks are looking at “mergers of equals” as a viable strategy. By merging with institutions of similar size, they aim to create a more stable entity that can withstand the pressures of regulatory scrutiny and market challenges.

Elizabeth: Successful banking M&A, regardless of scale, hinges on more than financial alignment; it requires transparent communication and thoughtful integration. With that in mind, how can banks use a merger of equals as a strategy to achieve success?

Dorree: It’s a delicate balance. These banks are not just merging balance sheets; they’re blending cultures and unifying operations. The key is finding an institution with a shared vision and establishing a governance framework that makes it clear that there will be equal representation and facilitates joint decision-making.

Elizabeth: Given the complexities involved, how do banks make sure that a merger of equals meets both regulatory requirements and their strategic goals?

Dorree: The key lies in comprehensive due diligence. Even though a merger of equals often begins with executive-level discussions, they demand the same level of thoroughness as any significant transaction. This means going beyond financial and tax reviews to include detailed operational diligence. It’s crucial to conduct an extensive analysis up front, including a confirmatory diligence period, to develop a target operating model that considers all implications — timing, value, customer impact. It’s also essential to discuss and agree upon a shared vision and framework to create equal representation — which enhances the deal value as well.

Elizabeth: The initial integration phase is critical, yet it must be balanced with the ability to adapt and evolve. How should banks manage this balance to realize both immediate and long-term success post-merger?

Dorree: It’s about striking the right balance between detailed preparation and post-merger agility. The most successful mergers are those that maintain a steadfast focus on delivering value from day one while managing the experiences of customers and employees throughout the transition. This allows banks to continue refining their operations and adapting to new challenges after the merger, helping achieve long-term success.