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Risk and Customers Key Considerations in Mergers

Forced unions, toxic assets and politics all raise the stakes for recent bank mergers. However, some basic M&A principles are as true for today's hastily arranged megamergers as they are for traditional acquisitions.

IT and Culture

Michael Cantor, VP and IT strategy, enterprise architecture and security practice leader at CapGemini, stresses that a bank cannot leave it to the IT department to make all the decisions around which platforms stay or go. "One of the most common mistakes I've seen during mergers is thinking the IT department can determine which platform will become the go-forward platform," he relates. "IT can't make the decision to shut a system down [even though] many times it becomes an IT problem. It should be decided by the business side because they do the process changes."

Colleen Smith, managing director of software-as-a-service initiatives with business application infrastructure software provider Progress Software (Bedford, Mass.), also emphasizes the business side as the key decision maker in any kind of merger-related activity. In fact, she says, it is during mergers that the degree to which a bank's business and IT sides are aligned really makes a difference. "The typical disconnect between business and IT can move more to the forefront during a merger," Smith explains. "Look at what the business requirements are and what will be required going forward as you make these decisions. The challenge for the [surviving] CIO is to present the IT strategy from a business point of view."

Sometimes, despite a bank's best efforts, the application rationalization process can still become political. "Sure it's political," says SAP's McAllister. "You're dealing with people who have pride of ownership. Now they're wondering if they should be sending out resumes." The most sophisticated system doesn't always win out, he notes. "As with anything, sometimes you have to make concessions."

Although there is no M&A tool kit that will allow banks to pull off their IT integrations without a hitch, there are technologies and methodologies that can make things easier than in the past.

Nuts-and-Bolts Tech Integration

"Having structured metrics in place from Day One is vital," says CapGemini's Drewitt. "The CapGemini Accelerated Solutions Environment [ASE] is a methodology that speeds all the aspects of an integration -- IT and culture," he claims, explaining that the ASE provides banks with metrics to quantify the actual value of an application or cost center and to help them develop strategies.

Also, the fact that more banks are adopting a service-oriented architecture (SOA) significantly helps when merging IT systems, according to Sterling's Gahagan. "Organizations that have adopted SOA tend to be more adaptable and nimble in how they perform a migration," he observes. "It makes things much easier than doing individual migrations."

Sterling also provides its own solutions to help ease merger-related IT integration. The company's Connect:Direct product is point-to-point file transfer software for data delivery of files within and between enterprises. And Sterling's Multi-Enterprise Finance Gateway (MEFG), an SOA-based integration platform, can be used to help move the migration along, according to Gahagan.

Of course the integration has to start somewhere, and how that is done and by whom is key to determining the process' success. According to Charles Gavin, a partner in the financial services practice at Diamond Management & Technology Consultants (Chicago), a costly pitfall for banks during the IT integration phase is putting too much separation between "business as usual" initiatives and merger integration initiatives.

"Look across 'business as usual' and integration and assign the appropriate workers across the products," he says. "Sometimes banks assign the people they know they will keep to 'business as usual' projects and will put more temporary workers or third parties on the integration job. You won't always get the best results this way. So look at your portfolio in totality and prioritize across both types of initiatives and come up with the right mix of resources."

The Customer Conundrum

Not to be forgotten amid all the M&A hubbub are the customers. "A merger is an imposition to the client," states Patni's Cohen. "You'd better do it right and make sure it's seamless; otherwise people will just walk out."

Diamond's Gavin says customers should be core to a bank's merger integration strategy. "Retaining customers is a challenge," he acknowledges. "Historically the focus in M&As was on shareholder value. Now, with the speed of these new mergers, there will be even more pressure to focus on the customers. You have to earn their trust -- take advantage of the merger to improve the customer experience and establish a customer-centric culture. So banks should focus their integration strategies around the customers."

This is about more than how many products customers have with the bank -- it's about the personal relationships, says CapGemini's Drewitt. "Say a commercial bank acquires an investment bank," he offers. "If you're a high-net-worth individual with the investment bank and your adviser doesn't like the new organization, the business moves with the adviser; so you need to see who owns the relationships, too."

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