JMFA’s Kelly Flynn, national sales director, looks at the important issues facing credit unions during mergers and acquisitions in the following article.
Mergers or acquisitions are stressful, time-consuming affairs. With so many big issues and minor-yet-important details to take care of, opportunities that don’t seem pressing can be pushed aside or overlooked.
Making sure vendors are in place for a smooth transition? Pressing.
Negotiating your bank or credit union’s vendor contracts? Not so pressing.
But what if I told you that your financial institution could achieve five-, six- or even seven-figure savings by negotiating its vendor contracts during a merger or acquisition? It would probably move the task pretty high up on the priority list.
Use Your Situation to Your Advantage
It’s true: contract negotiations can result in major savings, as well as improved efficiencies and streamlined service. Whenever two financial institutions combine, the service redundancy factor is not only overwhelming but expensive. The acquiring institution now has two core processors, two ATM and card processors, two credit reporting processors, and on and on.
Ultimately, senior management must decide which of the multiple platforms to select. But early termination of vendor contracts usually results in costly penalties.
A better solution? Have the acquiring institution create a competitive environment to determine which vendor is willing to absorb any termination costs to retain the business.
Establishing a competitive field will help to either eliminate the penalties or negotiate to have the winning vendor pay for some or all of them, and possibly result in added bonuses and savings for the institution.
Vendor vs. Vendor
This is exactly what we did for a client who was left with different debit and card processors, and different card brands, following the acquisition of an equally large financial institution. Essentially, they had to whittle four vendors down to two.
Instead of just going with the acquiring institution’s current vendors and paying to get out of the other contracts, we sent out requests for proposals (RFPs) to all four vendors. It was up to them to come back with their best offers.
That’s just what they did.
Our client received competitive proposals and made its decisions. Over the next nine years, they will save more than $2 million on the card brand contract alone. On top of that, the institution scored a $100,000 signing bonus and more than $325,000 in annual savings from its card processing vendor.
And to think, some banks and credit unions don’t even ask for bids during a merger or acquisition!
Plan Ahead to Save the Most
The above situation took about a year from start to finish, so vendor contract negotiations should be started early in the merger or acquisition process.
When you begin the contract negotiation process, you’ll also want to plan for and consider:
- contract expiration dates, to maximize the cost-savings benefit;
- the timing of converting card programs;
- the impact changing vendors may have on interchange income;
- employee training on the new system; and
- the impact to the institution’s account holders, such as:
- whether they need new debit and/or credit cards,
- when they will receive the new cards, and
- whether the call center can handle the additional call volume caused by account holder questions.
When facing a merger or acquisition, it makes perfect sense to bid out these services. Your vendors will be increasing their income with the upcoming relationship, and you want to make sure you’re getting the best deal available. It’s a win-win situation if there ever was one.
Having an experienced contract negotiator in your corner that knows the vendors and knows what to ask for is the surest and easiest way to get the most value from your vendor contracts. Depending on the transaction volume and size of the acquiring financial institution, the savings from reviewing vendor contracts could reach hundreds of thousands of dollars, if not millions as in the example above.
And with JMFA Contract Optimizer, it’s 100 percent risk free — if we don’t find you savings, you don’t owe us a thing.
If you’re already feeling swamped with details surrounding your merger or acquisition, don’t worry — simply fill out our evaluation form and we’ll get the ball rolling for you. That’s why we’re here.
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