Strategic execution is key to unlocking value in banking M&A
The economic case for thoughtfully executing integrations and separations in banking M&A is strong. Firms that take a deliberate and strategic approach experience faster growth and improved returns. Planning for execution from the beginning of the M&A process, whether as a buyer or a seller, allows banks to present a compelling narrative to the market, realize meaningful synergies, maintain client continuity, provide clarity to employees, and transition to business-as-usual operations in a faster, more seamless way. Firms that can navigate the unique challenges of each deal will have an important strategic advantage in the marketplace.
Sector M&A trends
Source: US bank data from S&P Global Market Intelligence, EDGAR, and Federal Reserve
Source: US bank data from S&P Global Market Intelligence, EDGAR, and Federal Reserve
Source: US bank data from S&P Global Market Intelligence, EDGAR, and Federal Reserve
Banking sector M&A deal value and price-to-tangible-book-value-multiple trends
Valuation multiples have tended to decline during periods of distress. Recently in the past three years, deal volumes have been particularly volatile since the outset of the COVID pandemic increased economic uncertainty.
Source: US bank data from S&P Global Market Intelligence, EDGAR, and Federal Reserve
Impact of interest rates
Control premiums
Strong cost synergies
Recent disruption in the banking sector has led to uncertainty
Following the disruption and multiple bank failures in the first quarter of 2023, many banks are rethinking their near- and medium-term strategic priorities, including potential M&A and restructuring. Despite inherent macroeconomic uncertainty, we think successful M&A will continue to be a competitive differentiator for organizations as an enabler of profitable growth in the long run. Review our 2024 Banking & Capital Markets M&A Outlook for additional perspective.
See the outlook
M&A isn’t easy
But it can be better
01
Defining the long-term
vision and integrated
operating model
M&A gives executive teams the right to reexamine their company’s operating model. Integration planning based on a holistic view of how the combined company will compete can deliver operating improvements as well as economies of scale.
02
Structured and
prioritized decision-
making processes
Internal and external stakeholders need clarity from top-level decisions in order to progress forward. To help teams accelerate, executive leadership should prioritize and drive resolution of a shortlist of key decisions on product portfolio strategy, go- to-market intent, and technology and operational platforms.
03
Articulation of the
strategic narrative to
the market
Banks are not blind to the dynamics facing the industry. Our experience shows that the market is more understanding and patient with transactions when the rationale and benefits to clients and the combined organization are both clear.
04
An issue-free closing
and Legal Day 1
Identification of potential issues and pre-planning of responses is key. Reaching a successful Legal Day 1 (LD1) will not earn executives credit, but missteps will certainly create frustration, failure, and fatigue for team members.
05
Dedicated resources
and a strong project
management office
Successful planning and execution of a M&A transaction is a full-time responsibility. Trying to accomplish it “side of desk” risks short-changing both the deal and day-to-day management of the bank.
06
Proactive planning and
post-sign execution at
pace
Realizing the full value of the deal involves proactive planning for post-sign execution, keeping momentum after LD1, ensuring dedicated teams remain empowered and accountable, and maintaining focus on delivery scope, major timelines, and financial value.
Follow our integration playbook to navigate the journey and achieve deal success
We think of the M&A and integration journey as a four-step process. While the duration and depth of each step vary from deal to deal, there is a set of common initiatives and requirements to pursue before signing a letter of intent (LOI), announcement, and closing. The specific focus areas and the time required for executive team members will fluctuate throughout the process, as will the internal and external support bench needed to reach a successful close and execute on post-merger integration.
01 -
Dilligence & negotiation
01
Diligence and
negotiation
Beyond assessing the target itself, diligence should inform early integration priorities for the combined company
Too often, due diligence focuses solely on the strengths and opportunities associated with the target company. This approach works well if no significant changes to the target’s operating model are foreseen. However, due diligence across multiple domains is critical to inform deal strategy and early integration design. Financial and credit due diligence on loan portfolio quality, operational due diligence on platform efficiency and risk, as well as commercial due diligence on sales and marketing effectiveness should all provide input to valuation estimates, initial synergy expectations, and likely integration complexities. Planning for an integrated operating model early in the process also allows acquirers to develop appropriate retention and incentive programs for leadership and key talent of both organizations. Robust diligence not only enables better alignment around the deal’s business case, but also avoids unwanted surprises later after signing.
02 -
Signing, announcement, mobilization
02
Signing,
announcement,
and mobilization
Defining, structuring, and preparing to mobilize an integration management office early is key
The integration management office (IMO) should be established from the outset of the deal to orchestrate planning and delivery across the integration program. Additionally, individual workstreams are typically structured around lines of business (LOBs) and horizontal functions, but should generally map across the two organizations to support planning. The IMO should have a clear top-down executive mandate lead the deal across the enterprise, coordinating across businesses, technology, and operations teams to plan and deliver the deal’s business case. Setting pace on the deal timeline, providing clear guidelines and consistent processes, and supporting workstream teams in collaboration are key responsibilities for the IMO. The first 100 days after announcement are key in mobilizing and driving forward progress for the deal, requiring clear decision-making priorities, streamlined data-sharing processes for discovery and analysis, and adequately dedicated resourcing capacity.
Integration management office: Key functions
03 -
Legal day 1 closing
03
Legal Day 1
closing
Reaching an issue-free Legal Day 1 requires defining strategic priorities and internal focus
Executive teams should not expect to get credit for clearing this hurdle but risk serious consequences for failing to get it right. A disjointed process that lacks coordination and the right decision-making forums can make the journey more difficult than it needs to be–impacting the morale and output of all team members. Success begins with developing minimum viable Legal Day 1 requirements for closing and future–state operating models to enable the integrated business, and establishing executable workplans to drive toward LD1 and beyond. For deals requiring Transition Service Agreements (TSAs), clear terms and contracting pre-LD1, as well as actionable exit plans, are important to manage business continuity and overall one-time integration costs. For large banking deals, common LD1 complexities often include CECL and purchase price accounting, enabling consolidated financial and risk reporting, managing combined credit portfolio composition and underwriting, maintaining core banking platform systems in parallel during the interim-state before cutover, and having a seamless client-facing collaboration model for frontline relationship managers across segments.
01
Determine desired target operating model design
02
Define LD1 requirements and action steps
03
Determine unique deal needs
04
Mobilize a command center and event execution plan
01
Determine desired target operating model design
Work with functional heads to develop the future state requirements of the target operating model, guided by executive vision and goals
Develop understanding of the existing model, future model, and key gaps to be closed to reach the end state
Ensure smooth transition of knowledge between due diligence team and integration execution teams
02
Define LD1 requirements and action steps
Define the specific level of integration by capability required for Legal Day 1 and map out fast-followers
The requirement gathering process must consider maintaining consistent relationships, clear communications, uninterrupted operations, and consistency in service for clients, employees, suppliers, and third parties
Issues and decision management can be facilitated by RAID (Risks, Actions, Issues, Decisions) logs for increased accountability
03
Determine unique deal needs
Determine the unique challenges and complexities to the deal that could undermine integration success
Design the new organization across each domain, aligning to the future state business and operating model to overall capacity and staff needs for the enterprise
Ensure smooth transition of knowledge between due diligence team and integration execution teams
Design appropriate TSAs to ensure required functional support if full separation of the target cannot be achieved at closing
04
Mobilize a command center and event execution plan
Develop a detailed execution plan to orchestrate step-by-step activities required across all business and functional groups in order to complete the event seamlessly, including focus on legal transaction steps, internal and external communications, technology requirements, and business continuity
Create a command center to serve as a single point of contact and direction for managing execution of detailed cutover plans
04 -
Post-close integration
04
Post-close
integration
Successful post-merger integration requires detailed planning, ongoing executive accountability, and clear understanding of the timeline required
Reaching a successful close is a key milestone in any transaction. From an external perspective, the close may mark the end of the journey; however, internally it is the beginning of integration execution within select functions. The length and complexity of this phase will vary, but when integration exists, this period is typically the longest. Delivering on new organizational design, processes, and workflows requires specificity on key milestones, timing, required resources, new technology, and enterprise interdependencies. It is important to maintain the IMO for continuity and accountability, albeit the composition and cadence may change. Progress against the desired functional operating model is what allows transactions to start to unlock benefits to all stakeholders.
Throughout the process a robust communication plan is needed to help stakeholders understand the benefits
One of the most crucial components for any integration is the communication plan. All communications should be built on a core set of coordinated messages but also recognize the nuances important to different stakeholders. Clear engagement strategies across segments for individual consumers, small business relationships, and large-scale commercial banking clients are key to retention. Orchestrated communications with external stakeholders such as financial regulators and community members are also important to manage proactively both before and after LD1. Overall, avoid conveying uncertainty and lack of clarity. The best communication plans lead with facts and articulate clearly what/when/how/why certain decisions are being made, in alignment with the overall deal thesis and marketplace narrative from announcement.
01
Communicate strategic
vision early
02
Involve and “hear” all key
internal stakeholders
03
Provide appropriate
transparency throughout
process
04
Communicate often in
various forums
05
Celebrate success and
acknowledge challenges
06
Proactively build toward
a unified culture
01
Communicate strategic vision early
02
Involve and “hear” all key internal stakeholders
03
Provide appropriate transparency throughout process
04
Communicate often in various forums
05
Celebrate success and acknowledge challenges
06
Proactively build toward a unified culture
The Deloitte difference
We harness our broad industry knowledge, deep M&A experience, unrivaled capabilities and technologies, and extensive global network of Deloitte professionals and alliances to turn highly customized mergers, acquisitions, and restructuring strategies into high-impact solutions that power growth.
We provide the right insights, capabilities, and support at the right time so you can anticipate what’s around the corner, effectively prepare your organization for change, and boost deal effectiveness.
Our team
Every deal is different, and the path to value creation is unique. The ability to bring an industry view to an M&A and restructuring transaction is perhaps more important now than ever before. Our end-to-end services are customized to meet the unique needs of any client, with an industry and sector emphasis to help define the right strategy, realize your goals, and identify future opportunities. Our team has the industry knowledge, depth of resources, and breadth of capabilities to bring you the unique combination of skills your transaction requires.
Advanced technologies
We engineer advantage for our M&A clients with a fully customizable, integrated set of innovative technologies we call our Total M&A Solution™. Starting with an engineer’s mindset and built on a foundation of experience across thousands of deals, these technologies deliver the power of automation, analytics, and machine learning to allow you to see, interpret, and deploy information when and where it makes a critical difference—all so you can identify risks, obligations, and opportunities earlier in the lifecycle.
End-to-end M&A and restructuring capabilities
We have entire teams of Deloitte professionals focused on each phase of an M&A and restructuring life cycle, from strategy, structuring, diligence, and valuation to integration/separation/restructuring planning and execution as well as functional experience in sales and marketing, operations, human resources, finance, tax, treasury, IT, legal, and real estate.
Our team
Advanced technologies
End-to-end M&A and Restructuring capabilties
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