NAFCU Services Blog

Aug 04, 2021 by DDJ Myers

Four Ways to Ensure a Good Merger Fit

By Deedee Myers, Founder & CEO, DDJ Myers, Ltd.

One factor that credit unions search for when choosing a merger partner is a “good fit.” But what does “fit” mean? It’s not like trying on a pair of shoes where you can tell instantly if the fit is comfortable or not. With mergers, there are several ways to consider whether the fit is good. Here are four criteria to consider.

Cultural Fit

Cultural fit means the two organizations share the same philosophical tenets and are driven by the same vision, mission, purpose, and values.

“If you’re looking at a merger opportunity, you have to be mindful that two institutions are coming together, so you need to consider what that is going to look like from a culture perspective,” says Adele Sandberg, President/CEO of $300 million AEA FCU, Yuma, Arizona, one of the credit union leaders to discuss this topic in “More for Members: Credit Union Leaders Plan Post-Pandemic Merger & Acquisition Strategies,” a three-part DDJ Myers white paper. “If you have clashing cultures, it’s going to be difficult and maybe even disruptive to the smooth operation of the credit union.”

Geographic Fit

There are two ways to look at geographic fit. One is to determine whether the merger will allow you to expand into new markets to widen your geographic reach. Webster First Federal Credit Union, Worcester, Massachusetts, used this strategy to expand beyond its mandated geographic boundaries. “As a community credit union, we were restricted to membership in central Massachusetts and could not go outside of that area,” explains President/CEO Michael Lussier.

Through a series of mergers, Webster First was able to expand all the way to Boston and now has locations in Middlesex, Essex, Suffolk, and Worcester counties. “With our expanded field of membership, we were able to grow from $400 million in assets to $1.2 billion today,” Lussier says

Geographic fit also can be about the type of community you wish to serve. “For example, I’m in a rural community, so I would probably be more inclined to go into other rural communities because we know how to serve them and to serve them well,” Sandberg says.

The Right Size

Because of the effort entailed with a merger, some credit unions set a minimum asset size for merger partners. For instance, $2 billion USALLIANCE Federal Credit Union, Rye, New York, grew with mergers in the $40 million range before cracking the billion-dollar mark. Now asset size generally needs to be more substantial to make strategic sense.

“As a $700 million credit union, moving forward with the merger of a $40 million credit union made sense,” says President/CEO Kris VanBeek. “At $2 billion, it makes less sense.”

Fields of Membership

Credit unions often merge with one another because their fields of membership are compatible. In that regard, $1 billion University Credit Union, Los Angeles, puts primary emphasis on potential merger partners that serve one or more universities or higher education. A nationwide merger strategy is well suited for credit unions with a SEG-based, industry, or association charter, says CEO David Tuyo, especially if regulations defining fields of membership and common bonds are updated to reflect the realities of the digital age.

“Looking at membership based on zip codes or counties is a yesterday way of defining fields of membership,” Tuyo contends. “What we’re trying to identify in a field of membership is a common bond, and that could span zip codes, state lines, and even the entire globe.”

Click the link to download the three-part white paper, More for Members: Credit Union Leaders Plan Post-Pandemic Merger & Acquisition Strategies.”

About the Author