SEATTLE–Mergers will continue to be a vital option for credit unions in 2017, with an average of 20 credit unions involved in mergers every month, according to one person.
“Merging is a very important strategy for credit unions to consider,” said Glenn Christensen, founder of CEO Advisory Group, who noted that 3% of credit unions per year have been involved in a merger in recent years.
Christensen also authors a monthly column in CUToday.info examining trends in mergers.
Strategic mergers are the norm now, he said, and are no longer limited to failing institutions. And the institutions range in size from the smallest credit unions to multi-billion-dollar asset CUs.
“There continues to be a great amount of opportunity for credit unions to consolidate,” he said, even though at the industry’s peak there were 23,000 credit unions. Now there are fewer than 6,000.
“Credit unions have a true competitive advantage over the commercial bank model,” he pointed out. CUs can pool money rather than pay acquisition costs at a multiple of book value. “It’s a huge benefit to be able to pool resources,” he said.
In other words, if a bank has $10 million in capital it take $10 million-$15 million to acquire it. A credit union doesn’t have to pay that money out to acquire another, though there are conversion expenses incurred.
To date, merger candidates traditionally have been primarily small institutions under $50 million in assets, he said. But in the last decade more medium-sized credit unions have been considering a combination with another.
Unlike banks, where layoffs are one of the first steps taken after a merger as efficiencies are chased, Christensen noted credit unions rarely lay off people in acquisitions.
“The savings can be redeployed into the credit union that was acquired,” he said.
Those funds can be invested in new technology, or for building a new branch or connecting into a larger ATM network. Or, the money could be used to pay better salaries and benefits, or modernize marketing into social media. “It’s a win-win for both sides.”
Acquisitions can come in all sizes in the industry. A credit union with as few as $20 million in assets can acquire an even smaller one.
“More and more, multi-billion dollar credit unions have entered the game,” he said. An active acquirer? PenFed is perhaps the most high-profile credit union in acquisitions” he said of the credit union that has a mergers and acquisitions department.
The 2017 Strategy
Christensen said money isn’t always the only topic executives or boards he advises think about. “They talk about how can we really help the people in this community more,” he said. He also said he sometimes hears about their desire to take market share away from banks.
“In 2017, we’re going to see more and more of mergers as part of their strategy. More and more players will get into the market.”
The strategic acquisition trend will continue throughout the year, he forecast. A relatively good economy means “not as many credit unions being acquired for financial hardship. There’s not as much pressure on smaller credit unions as there was a couple of years ago.”
CEO Advisory Group has been in business about 15 years. Strategic growth and profitability, usually through mergers, is what he advises industry executives and boards on. But he can also advise companies before mergers. “I like to give them an option, help to get them out of financial straits,” he said.
Christensen maintains an active blog on the company’s website (www.ceoadvisory.com), and also occasionally will invite others to participate to get their perspectives. He has also written for business journals and other industry sources.
His most recent blog reports on credit union mergers for February. There were 14, down from 21 in January, and none of them involved acquired institutions with more than $100 million.
—Mark Fogarty