3 min read • Financial Services
M&A expertise key to banks’ survival through credit crunch
<p>A new report by Arthur D. Little asks: how can banks manage post-merger integration to realise true value growth in the post-liquidity crisis environment?</p>
With the crisis in financial markets fueling increased merger and acquisition (M&A) activity throughout Europe's financial services industry, a new study by global management consultancy Arthur D. Little predicts that within the next three years, ten of today's top fifty European banks will have disappeared due to consolidation. With consolidation increasing and a track record of half of all mergers failing, a proactive post-merger integration strategy is critical to coming out as a winner. According to Arthur D. Little's latest report, "
Driving Banks' Value through M&A," there are three major drivers to M&A that will continue fueling deal activity: geographic expansion into Central and Eastern European growth markets; consolidation in mature markets; and restructuring the value chain. The scarcity of risk capital required to decrease the leverage on the balance sheet in combination with a shortage of liquidity and funding will pose constraints on the weaker players and accelerate the trend in favor of the crisis winners.
M&A Drivers
Based on an analysis of European banks in the FT500 index, Arthur D. Little's study reveals a strong correlation between M&A activity and growth in market capitalization. For instance, UniCredit's strategic acquisition saw it climb from 29th to 4th largest European bank based on market capitalization in a three year period. However, the current crisis in financial markets means a greater number of major financial services institutions are up for sale, and the risk of failed mergers is also on the rise.
"Whether looking to M&A to enter new growth markets, consolidate services in mature markets, or re-focus on their core competencies, the credit crunch has certainly given those banks with high liquidity even more reason to consider strategic M&A," said Dr. Gerrit Seidel, Managing Director and Global Head Financial Services Practice at Arthur D. Little. "However, with half of all mergers failing to produce value, banks without a strong focus on post-merger integration will stagnate or shrink in terms of market value." adds Michael Ungerath, Director Strategy and Organization Practice at Arthur D. Little.
Merger Decathlon
The report outlines a ten-step approach for financial services to successfully manage deals in the post-credit crunch market. Urging banks to consider a combined approach that addresses both the hard and soft factors of integration, Arthur D. Little's "Merger Decathlon" outlines how banks can master the challenges of integration by excelling in ten critical disciplines:
- Follow a clear strategy
- Pick the right deal
- Leverage the pre-closing period
- Adapt integration approach and speed
- Take critical governance decisions upfront
- Invest your best resources
- Keep your eyes on the ball
- Capture synergies in the bottom line
- Communication
- Address the cultural differences
The aim of Arthur D. Little's ten-step guide is to address the full range of considerations necessary to ensure successful organizational and cultural integration. With the credit crunch forcing consolidation as well as providing opportunities to use acquisition as a market entry strategy, banks must now consider successful post-merger integration as a critical task for their survival.
Driving banks' value through M&A is now available for download at
www.adl.com/bankm_a
3 min read • Financial Services
M&A expertise key to banks’ survival through credit crunch
<p>A new report by Arthur D. Little asks: how can banks manage post-merger integration to realise true value growth in the post-liquidity crisis environment?</p>
With the crisis in financial markets fueling increased merger and acquisition (M&A) activity throughout Europe's financial services industry, a new study by global management consultancy Arthur D. Little predicts that within the next three years, ten of today's top fifty European banks will have disappeared due to consolidation. With consolidation increasing and a track record of half of all mergers failing, a proactive post-merger integration strategy is critical to coming out as a winner. According to Arthur D. Little's latest report, "
Driving Banks' Value through M&A," there are three major drivers to M&A that will continue fueling deal activity: geographic expansion into Central and Eastern European growth markets; consolidation in mature markets; and restructuring the value chain. The scarcity of risk capital required to decrease the leverage on the balance sheet in combination with a shortage of liquidity and funding will pose constraints on the weaker players and accelerate the trend in favor of the crisis winners.
M&A Drivers
Based on an analysis of European banks in the FT500 index, Arthur D. Little's study reveals a strong correlation between M&A activity and growth in market capitalization. For instance, UniCredit's strategic acquisition saw it climb from 29th to 4th largest European bank based on market capitalization in a three year period. However, the current crisis in financial markets means a greater number of major financial services institutions are up for sale, and the risk of failed mergers is also on the rise.
"Whether looking to M&A to enter new growth markets, consolidate services in mature markets, or re-focus on their core competencies, the credit crunch has certainly given those banks with high liquidity even more reason to consider strategic M&A," said Dr. Gerrit Seidel, Managing Director and Global Head Financial Services Practice at Arthur D. Little. "However, with half of all mergers failing to produce value, banks without a strong focus on post-merger integration will stagnate or shrink in terms of market value." adds Michael Ungerath, Director Strategy and Organization Practice at Arthur D. Little.
Merger Decathlon
The report outlines a ten-step approach for financial services to successfully manage deals in the post-credit crunch market. Urging banks to consider a combined approach that addresses both the hard and soft factors of integration, Arthur D. Little's "Merger Decathlon" outlines how banks can master the challenges of integration by excelling in ten critical disciplines:
- Follow a clear strategy
- Pick the right deal
- Leverage the pre-closing period
- Adapt integration approach and speed
- Take critical governance decisions upfront
- Invest your best resources
- Keep your eyes on the ball
- Capture synergies in the bottom line
- Communication
- Address the cultural differences
The aim of Arthur D. Little's ten-step guide is to address the full range of considerations necessary to ensure successful organizational and cultural integration. With the credit crunch forcing consolidation as well as providing opportunities to use acquisition as a market entry strategy, banks must now consider successful post-merger integration as a critical task for their survival.
Driving banks' value through M&A is now available for download at
www.adl.com/bankm_a