By Ray Birch
MOLINE, Ill.–One credit union is contending geographic distance should no longer hinder mergers among credit unions, and that those who limit their scope to “local” may someday place the business at risk.
The CEO of the $754-million Vibrant Credit Union says CUs should instead base combinations more on cultural matches and less on proximity, which was its philosophy when it sought to merge with the $333-million Infinity Credit Union in Westbrook, Maine, more than 1,200 miles away.
Indeed, it was differences in philosophy as well as differences in business process that led to the deal eventually being called off, as CUToday.info reported here.
“In our industry there is such a short runway—we're all going to face challenges,” said Vibrant CEO Matt McCombs, referring to the need by credit unions to achieve the scale needed to compete. “You have to be aggressive because there's big changes in banking coming. You have got to get bigger and do it at a decent pace, and you have to look beyond your borders.”
To effectively prepare for the greater disruption that’s he said is coming in financial services, McCombs believes credit unions must widen the merger net, emphasizing that when credit unions choose to merge with another financial co-op many miles or even states away, it diversifies the credit union’s markets and protects against local market economic downturns.
A ‘Non-Barrier’
“I truly believe geography is becoming a non-barrier in everything we do in life today—including how we manage our financials. We don’t need branches as much as we used to. Geography just isn’t the barrier it used to be,” said McCombs. “What we are looking for now in merger partners is a like-minded organization—how they want to make an impact on their membership, on their employees and on the communities they serve. If we can find that then geography doesn't matter, especially in today’s digital world. Marriage isn't dictated by geography, it's dictated by philosophy.”
That is what McCombs said Vibrant thought it had in choosing to partner with Infinity CU. However, just short of obtaining regulatory approval 14 months into the deal, and after some deep dives into each other’s organizations, both credit unions determined that there were some differences that could not be bridged, McCombs explained.
Process Exposes Differences
In Maine, Infinity FCU President/CEO Elizabeth Hayes agreed, saying when both organizations started down the path to merger it seemed like a natural fit.
“However, the merger process brought some important differences to light and it became evident that the integration was simply not a good fit,” she said.
McCombs believes the decision to combine with Infinity was the right one in that in the earlier stages of the merger all signs pointed to both organizations working well together. Vibrant was to be the continuing credit union and Infinity would be a division of Vibrant.
“As you go through a merger process you always continue to evaluate it, all the way to the end,” explained McCombs. “Both credit unions have a lot of similar beliefs, so in our basic philosophies we were always a good fit. But as we dove down into this more, really got involved with all the various departments we found there were just some differences we had. You look at those differences and you both ask if you are willing to change. Not saying that one way was better than another, we just both believed differently on some things and determined that in the end we just were not going to match.”
More People, New Questions
Matt McCombs
McCombs added the differences emerged when more people became involved in the merger process, saying that widening the scope of individuals providing input is the natural progression of any merger.
“Initially the conversations you have are with a smaller number of people. As you move through the process that circle of people becomes larger,” he explained.
McCombs said that in the end the differences were largely around departmental processes and functions, as well as vision.
“Some departmental functions were significantly different in a couple areas, and we just made the decision that this just wasn’t going to work,” said McCombs. “We didn't feel like we needed to change, nor did they feel like they needed to change.”
Still Looking at Options
McCombs said Vibrant is still considering long-distance mergers and that the distance in the case of the Infinity deal had nothing to do with the combination being called off.
“We're always looking at what's around the corner,” he said. “If a credit union is anti-merger, they're probably burying their head in the sand. I am not saying you should be out in the world looking for mergers, but you need to always be looking at ways to put your organization the best position and some of that has to do with scale. The financial services industry is going to be facing some headwinds in the future and you have to be ready.”