Using Data in Your Merger & Acquisition Decisions

There are few decisions a credit union leader will be confronted with that have a greater impact than a merger or acquisition. Undoubtedly, M&A decisions will have a lasting effect on a credit union’s membership, employees and the broader community. As with all impactful decisions, a leader may look to data, aligned with strategy, to guide the decision-making and final outcomes. This article will share some important considerations for credit union leaders, as well as some of the data sources that are informative in making this sort of strategic decision.

When a credit union’s leadership – management, in concert with the board of directors – decide that a merger or acquisition is appropriate, the credit union’s place relative to its environment changes. This implies that any merger or acquisition discussion should be framed as a strategic discussion. Regardless of what strategic framework the credit union uses, an M&A proposition and its outcomes present risk. They present a series of unknowns because the credit union is moving outside of its known ­operations. This is where data becomes a critical tool. Data illuminates the unknowns and defines the ill-defined to offer guidance amid the fog of uncertainty.

In considering what data to use, a credit union leader must first answer the question that should be asked prior to any type of strategic decision. What is the end goal of the merger or acquisition? Is it to enter a new market? Serve an orphaned membership through years of indirect lending? If the leadership can articulate the “why,” the strategic vision will begin to define itself. Leadership needs to iterate on the vision until it becomes a clear statement that is easily understood throughout the credit union.

Once leadership can clearly articulate the vision behind M&A activity, the right data can be gathered and analyzed to help leadership make better decisions. For the sake of this article, “serving an orphaned membership through indirect lending” will be used as the “why,” as it is a fairly common situation. Choosing the data necessary to inform the decision of whom to partner with in M&A activities can now enter the discussion.

The first questions to ask would be, “How many members are orphaned?” and “Where are those members located?” That initial question may not be as simple to answer as it might seem at first. Unless a credit union keeps a well-groomed data lineage of who has and has not become a member through an indirect loan channel, leaders will likely need to use other, less specific data. Data such as member mailing ­addresses can still return valuable insight into how many members are in each area, in addition to potentially orphaned members. Plotting these members on a map gives leadership a clear vision of where those members are located and how many of them exist.

Location information, coupled with established transaction, service and profitability profiles of each member group, will be critical to nominating merger or acquisition partners. By understanding the unique financial needs of the existing and potential members inhabiting the new service area, a credit union can take purposeful actions in servicing the expanded area and help inform its strategy.

Obtaining a view of this internal data is helpful, but to drive down the risk, there is more data that credit union leaders should consider – external data. Census data is a treasure trove for strategic decision-making. With census data, a credit union leader can develop a data-driven picture of his or her environment. Census data of course provides a view of how a community is growing or shrinking and it can do so in surprising granularity, drilling down much further than just ZIP codes. When combined with the orphaned member data, these two data sources will provide a strong indication of which direction to take the discussion in next.

In addition to internal data that pinpoints service density for a given area, and census data that speaks to broader trends in population growth, a credit union can avail itself of the many third-party data aggregators to complete the data-driven picture. Data aggregators and commercially available consumer databases can generate demographic purchasing profiles for specific populations. This third-party data will provide a comprehensive look at the spending habits and financial needs of people who do not have any relationship with the credit union. This information is typically available on a variety of levels, from aggregating by ZIP code to profiling individual households.

Now that credit union leadership has obtained signaling information informing where to target their M&A activities, these data and visualization efforts should be completed for candidate M&A partners. Overlaying M&A partners’ servicing areas over what the leadership already knows will help sharpen M&A discussions and quantify the value of the partner. Further, using this data in an M&A decision helps mitigate risk, as it allows credit union leadership to understand if the M&A partner services an area that is growing or declining, based on the census data.

A merger or acquisition is an important tool in a credit union leader’s toolbox. It can double the credit union’s membership and servicing area overnight – as well as the headaches that come along with this kind of growth. As such, an M&A decision is not one to be made lightly and should be weighed against other alternatives. While there are few strategic decisions that carry greater gravity than an M&A decision, using data can help reduce the uncertainty.

Ray K. Ragan (left) and Timothy “Buck” Strasser Co-Founder and Founder Clear Core Tucson, Ariz.