Credit Unions and CUSOs

Credit unions and CUSOs are using their investing powers to be more innovative and entrepreneurial when it comes to technology and new products and services. Many are exploring co-investing with individuals and business founders who are looking for additional capital from credit unions. While these partnerships between credit union investors and individuals generate fresh new ideas, they sometimes face friction as the two cultures collide.

I had the opportunity to speak on this issue with Kirk Drake, CEO of Ongoing Operations and Brian Lauer, Partner at Messick, Lauer & Smith in the panel “Entrepreneurs as Co-Owners of CUSOs – Managing Different Business Styles and Expectationsat the 2017 NACUSO Network Conference in Orlando, Florida.

In a packed breakout session we discussed how credit unions and CUSOs should persuade individuals to work for their organization and how to build a bridge between two different perspectives. One of the most important things credit unions and CUSOs must do is recognize the asymmetry between a highly-regulated credit union environment and a swift, entrepreneurial culture. Recognizing these differences is the first step to understanding how to incentivize entrepreneurs not just from a financial standpoint, but from an emotional and strategic position so that you can grow your organization as a team.

Should your credit union acquire a bank? If you are looking for new ways to grow, acquiring a bank may be an option for your credit union.

Capstone is excited to host a webinar attorney Michael Bell, who pioneered this new approach and continues to help credit unions acquire banks. The webinar will cover the strategy and mechanics behind a credit union-bank merger as well as challenges and proactive growth opportunities for credit unions.

Seizing Your Opportunity for Growth: Exploring the  Credit Union–Bank Merger Trend with Expert Michael Bell

Date: March 9, 2017

Time: 1:00 PM / 12:00 PM EST

Michael Bell is an attorney at Howard & Howard and a leading advisor to credit unions and national financial institutions seeking non-organic growth, strategic advice. In 2011, Michael completed the first ever purchase of a bank by a credit union. Michael continues advising credit unions in this area and has completed every credit union purchase of a bank to date. He is a “go-to” legal advisor in this area.

Founded in 1995, Capstone is a leading advisory firm focused on helping companies grow through proactive, strategic growth programs and mergers and acquisitions. As the leaders in strategic mergers and acquisitions for CUSOs, we have helped numerous credit union and CUSO leaders develop, evaluate, and implement initiatives for growth. Learn more at www.CapstoneStrategic.com.

Photo Credit: Ted Eytan via Flickr cc

Are you exploring all your options for growth? When you think about a growing your credit union or CUSO through a “merger” strategy, you may be tempted to focus on consolidation alone. While combining two credit unions can be a pathway to growth, it is important to recognize it is just one of a number of options available to you. Consolidation may not be the best solution for your organization and may not help you add the value you had hope for.

In a CU Insight article, Kirk Drake, CEO of Ongoing Operations, a credit union service organization, and John Dearing, Managing Director of Capstone, discuss the growth options available to credit unions and CUSOs and how to use strategic mergers and acquisitions to maximize your growth potential.

Read the article on CU Insight.

The credit union industry is evolving. While many credit unions are consolidating through credit union mergers, others are seizing creative opportunities such as adopting cloud technology to improve efficiencies, focusing on underserved markets, and using partnerships and strategic mergers and acquisitions to grow and bring value to members.

One interesting trend to note is credit unions acquiring banks. Since 2011, 11 transactions have been announced. Most recently Family Security Credit Union of Decatur, Alabama announced its plan to acquire Bank of Pine Hill of Pine Hill, Alabama. Earlier this year Royal Credit Union announced the acquisition of Capital Bank in St. Paul, Minnesota, and Advia Credit Union announced the acquisition of Mid America Bank in Parchment, Michigan.

Since 2011, 11 credit union - bank acquisitions have been announced.

Since 2011, 11 credit union – bank acquisitions have been announced.

Credit unions are taking action for a number of reasons including to increase their market footprint, scale with vendors and partners, grow non-interest income, and enhance technology. For many credit unions, strategic mergers and acquisitions can be a way to rapidly achieve growth.

Acquiring community banks is a new type of opportunity for credit unions that adds to their share and geographic reach. For the banks, credit unions are a trusted local partner that can continue to serve the financial needs of their customers. More credit union – bank transactions are expected to be announced before the end of 2016.

While acquiring a bank may or may not be the right strategy for your organization, being proactive and developing new strategies for growth is incredibly important in today’s environment. Credit unions are faced with new challenges every day from the rising cost of compliance to the increasing threat of hackers and cyber security issues to generating member-friendly non-interest income. It is abundantly clear that remaining stagnant and going about business as usual is no longer an option. Credit unions that address these challenges head-on and adapt new strategies will continue to grow and serve the needs of their current members and new members.

Are you looking for growth? If you are like most leaders, the answer is probably “yes.” Growth is essential to every business regardless of industry, size or geography. Even if you are growing now, you must continue to grow to be successful in the future. At Capstone we believe in the maxim “grow or die” and are dedicated to helping our clients grow.

We recently had the opportunity to share our passion for growth with the National Association of Credit Union Service Organizations (NACUSO). Capstone Managing Director John Dearing sat down with NACUSO to share our story of bringing strategic mergers and acquisitions to the CUSO world.

What’s your current position and can you give me a brief overview of what it is you do in your work?

In short, we are growth engineers and I’m a Partner and Managing Director at Capstone.

Capstone helps our clients develop and execute strategic, external growth plans – investments and acquisitions, partnerships and alliances. It is my responsibility to make sure our clients are happy. I oversee delivery of client engagements. One of our measures of success is if clients come back for more. We make sure we have the right team to be able to work with clients over long periods of time. We consider it an accomplishment to have worked with some of our clients for decades. In fact, we are proud to continue working with our first client from 1995.

Read the complete interview on the NACUSO website.

We all know growth is vital to the success of our organizations, but knowing exactly how to achieve growth can be challenging. Credit unions today face many issues such as regulatory challenges, industry consolidation, economic and political uncertainty, and tough competition. In such an environment how can you continue to provide value to your members?

Fortunately, there are many options for growth for credit unions to consider including investing in CUSOs, using CUSOs to grow through mergers and acquisitions, proactively seeking ways to generate non-interest income, external partnerships and collaborations, and more!

Credit unions that succeed long-term take a proactive approach to seizing these opportunities for growth. Learn how to swiftly implement your growth strategy and position your organization for success in the upcoming webinar “Finding the Best Path for Growth: Strategies for Credit Unions” presented by Capstone Managing Director, John Dearing, and hosted by National Cooperative Bank.

Webinar topics include:

  • New ideas for strategic growth
  • How to evaluate and prioritize your options for growth
  • New ways to generate non-interest income
  • How to use collaborations, partnership and strategic acquisitions as a growth strategy
  • Exploring CUSO investment opportunities
  • Developing strategic criteria
  • Tools for exploration and execution of a strategic growth plan for your credit union

Date: Thursday, June 23, 2016

Time: 12:00 PM – 1:00 PM ET

About Your Presenter

John Dearing is a Managing Director at Capstone, an advisory firm focused on helping companies grow through proactive, strategic growth programs. We have helped numerous credit union and CUSO leaders develop, evaluate, and implement initiatives for growth.

About National Cooperative Bank


National Cooperative Bank (NCB)
provides comprehensive banking services to cooperatives and member-owned organizations. NCB was created to address the financial needs of an underserved market niche – people who join together cooperatively to meet personal, social or business needs. Given our shared cooperative roots, credit unions and NCB have had a mutually beneficial relationship since NCB’s inception.

Photo Credit: Barn Images

Last week Capstone Managing Director John Dearing had the opportunity to attend the 2016 NACUSO Annual Conference on April 4-7, 2016.

Over 400 people attended the Las Vegas event, exchanging ideas and listening to industry experts. Conference topics included investment services, insurance services, innovation and operations, technology, member business lending, mortgage services, and business development.

Erik Wahl, an internationally recognized speed artist, author and entrepreneur, delivered the opening keynote. Wahl’s message “UNTHINK” inspired CUSO leaders to expand creatively beyond traditional thought patterns and unlock new ideas.

John Dearing attended the Conference because of Capstone’s many years of experience in helping CUSO clients grow through M&A.  “It’s an exciting time to be in the CUSO space,” John reported. “Leaders are thinking of new ways to grow and we’re finding increased interest in pursuing strategic M&A as an avenue for growth.”

Below are some snapshots from the trip:

Keynote speaker Erik Wahl presents at the 2016 NACUSO Annual Conference.

Keynote speaker Erik Wahl presents at the 2016 NACUSO Annual Conference.

Erik Wahl's artwork.

Erik Wahl’s artwork.

CUSO leaders listen to industry experts at the 2016 NACUSO Annual Conference.

CUSO leaders listen to industry experts at the 2016 NACUSO Annual Conference.

All photos taken by John Dearing, Managing Director, Capstone.

It’s no surprise that credit union consolidation continues; it is estimated that there were 65% more mergers in 2015 than in 2000. Overall, there were about 15% fewer credit unions in 2015 than in 2011. While there are fewer players today than in previous years, the credit union market is not shrinking or in decline. The number of credit unions with over $500 million in assets grew by 21% from 2011 to 2015, which means there are fewer, larger players. Consolidation is not limited to credit unions alone. We are also seeing consolidation of service organizations that provider products, services and technology to the credit union space as well.

Given the current environment, what’s the best course of action for CUSOs? One the one hand, for credit union service organizations (CUSOs) serving credit unions exclusively it means there are fewer credit unions to sell to, but on the other hand, since each player is bigger there are potentially more opportunities for CUSOs.

There are CUSOs right now proactively trying to find value and expand in today’s market. For example, CUSO currently only servicing the east coast may use strategic M&A to quickly gain a footprint in a new geographic market in order to service the growing member base of the credit unions they service.

External factors are also affecting the credit union and CUSO industry. When we look at U.S. M&A activity as a whole, 2015 was a massive year. We are in an environment where deal flow, the number of transactions, size of transactions and valuation multiples are at a peak. And peaks are followed by troughs so 2016 could be an interesting year.

There are a ton of deals going on and a lot of money chasing those deals. This means there are new competitors that CUSOs need to consider when investing in organizations. More and more people from outside the credit union space see the opportunity and are trying to figure out how to enter the industry. For example, private equity are doubling down and looking to expand in technology and financial services especially. While there is more competition from outsiders looking to invest in the same opportunities, CUSOs also provide unique access and benefits to non-exclusive credit union organizations looking to enter into the credit union world.

* This post was contributed by John Dearing, Managing Director at Capstone

Strategic mergers and acquisitions can be a powerful tool for growing your CUSO, but much of your success depends on finding the right partner. How can you identify the right partner for growth?

The best way to begin your search is to identify the ideal markets in which to grow your organization. Once you have researched and selected the top markets for growth, you can begin searching for potential partners in that market that will help your CUSO grow!

Capstone is excited to be partnering with the National Association of Credit Union Service Organizations (NACUSO) for an exciting webinar. NACUSO helps credit unions explore the use of CUSOs and the delivery of non-traditional products and services.

In this webinar, led by John Dearing, Managing Director of Capstone, you will learn how to use a demand-driven approach to search for the right partner systematically and efficiently. John has led a successful acquisition program for nearly twenty years, including over ten years of helping CUSOs grow through external growth and M&A.

Date: February 16, 2016

Time: 12:30 – 1:30 PM ET

Credit unions’ traditional use of consolidation as one way to grow is a trend likely to rise over the next five years, according to industry experts. While the percentage of these deals climbs, there actually are fewer mergers because there are fewer credit unions. There were 4% fewer credit unions in September 2015 than one year earlier, according to CU Data.

Credit Union mergers and consolidation.

Credit union consolidation continues.

Given their decreasing numbers, credit unions pursuing growth will need to consider alternatives ways to grow such as strategic mergers and acquisitions, a common strategy used in the for-profit world. Strategic M&A for credit unions may be motivated by distribution — offering existing products and services to new markets, members or geographies —or breadth — adding new products or services for their existing members. This important tool can generate noninterest income and allow credit unions to create unique value for their members.

At the CUES Directors Conference, Capstone CEO David Braun presented a workshop on Strategic Mergers & Acquisitions for Credit Unions, where he challenged credit union leaders to think creatively to generate new ideas for growth. At this standing-room only session, credit union leaders discussed the increasing importance of strategic mergers and acquisitions for their organizations and for the credit union industry as a whole.

CUES David Braun Strategic Mergers and Acquisitions 2015

David Braun presented a workshop “Grow or Die: Strategic Mergers and Acquisitions for Credit Unions” at the CUES Directors Conference in Orlando Florida on December 8, 2015

Feature photo credit: Opensource.com via Flickr cc

Credit union consolidations are on the rise in 2015, continuing a trend from previous years. There were 14% fewer credit unions in March 2015 than there were in March 2010, according to data from CUDATA.com. As credit unions consolidate, the number of smaller credit unions is decreasing while the number of large credit unions between $100-$500 million and over $500 million in size is increasing.

Credit union consolidation continues. There were about 14% fewer credit unions in March 2015 than March 2010.

Credit union consolidation continues. There were about 14% fewer credit unions in March 2015 than March 2010.

With all the M&A activity, it’s no surprise M&A remains a key topic of interest for credit unions leaders. Earlier this week John Dearing, Managing Director, presented “Strategic Mergers & Acquisitions: Exploring External Growth” at the Credit Union Services and Products Conference hosted by CU Conferences in Nashville, Tennessee. About 70 executives and board members of credit unions participated in this interactive session.

John’s presentation not only covered current trends in credit union M&A, but also explored how credit unions can use strategic options in addition to consolidation when growing through M&A. These could include adding a new technology or expanding into a new market order to grow.

Below are some pictures from the conference.

John and Don Berra, hosts of CU Conferences.

John and Don Berra, hosts of CU Conferences.

John Dearing, Capstone Managing Director, presented "Strategic Mergers & Acquisitions: Exploring External Growth" at the Credit Union Services and Products Conference in Nashville.

John Dearing, Capstone Managing Director, presented “Strategic Mergers & Acquisitions: Exploring External Growth” at the Credit Union Services and Products Conference in Nashville.

Participants at the Credit Union Services and Products Conference hosted by CU Conferences in Nashville, Tennessee.

Participants at the Credit Union Services and Products Conference hosted by CU Conferences in Nashville, Tennessee.

Enjoying local music.

Enjoying local music.

Nashville at night: The Grand Ole Opry

Nashville at night: The Grand Ole Opry

 

Aloha! We hope you have been enjoying these last few weeks of summer. Our very own Managing Director, John Dearing, recently returned from Maui, Hawaii, where he spoke at the National Credit Union Directors Conference hosted by CU Conferences on August 12 -15. John presented “Strategic Mergers and Acquisitions: Exploring External Growth” in two parts to over 100 credit union directors and executives.

FinTech Acquisitions

One trend highlighted at the conference was the focus on financial technology (FinTech) acquisitions. Banks in particular have been acquiring startups or creating their own incubators and venture capital arms.

Recent examples include:

  • Capital One acquired Level Money, a San Francisco-based money management app in January 2015.
  • BBVA acquired Simple, a banking startup, for $117 million in February 2014.
  • Context 360, Motion Savvy and Bracket Computing joined Wells Fargo’s accelerator program. The program involves direct investment in the startups and six months of mentoring for the executive teams.
  • Mastercard is using strategic M&A to build customer loyalty, data analytics and safety and security. Since 2014 it has acquired C SAM, a mobile wallet service; Pinpoint, a loyalty provider; ElectraCard Services, a payment processor; Transaction Network Services (TNS) a payment gateway service; and Applied Predictive Technologies (APT), a cloud-based analytics provider.

Mobile Banking on the Rise

Like banks, credit unions should also consider using acquisitions to build their technology. With the demand for mobile technology services ion the rise, more members are relying on smartphones to access anything and everything – including their financial data. Mobile banking is the largest banking channel. More than 25% of the world’s population will be mobile bankers within four years and organizations without a clear strategy will lose members.

Following Demand is Critical to Growth

Rather than build up this capability internally, credit unions can acquire to add unique technology products and remain competitive.

Mobile technology is just one example of how credit unions can use strategic M&A to grow. Perhaps you want to quickly expand your geographic footprint in a growing metropolitan area; acquiring another credit union would allow you to do so. Observing current demand and future demand is critical to strategic growth and may provide a competitive advantage.  As you go about developing your strategic plan, consider using acquisition to help your organization achieve its growth goals.

The beautiful view at the National Credit Union Directors Conference hosted by CU Conferences in Maui on August 12-15, 2015.

The beautiful view at the National Credit Union Directors Conference hosted by CU Conferences in Maui on August 12-15, 2015.

Credit unions have in the past year or so embraced strategic mergers and acquisitions with fervor. This was especially evident at the CUES Execu/Summit I spoke at last week.

While strategic M&A in the credit union industry is not new, I’m excited about the enthusiasm that now surrounds the topic.

Capstone has been active in the industry facilitating deals and developing strategic growth plans for over 10 years.

When we began working with credit unions in 2003, we found strategic M&A was on fewer people’s radars and that fewer credit union leaders understood the advantages of or even considered strategic mergers and acquisitions. Now, pressed by regulatory changes and marketplace dynamics, the tide is changing. I for one am very excited to see what new opportunities will become available as a result of embracing strategic deals.

John Dearing, Capstone Managing Director, was asked to write an op-ed for the Credit Union Times about the ways that credit unions can find additional sources of non-interest income. I’ve included part of John’s article below:

Every industry faces change and the credit union industry is no different. Market developments and new regulations are challenging credit unions to find new sources of non-interest income in order to grow.

While it can be difficult to thrive or even survive in an unstable environment, change also brings opportunity. One option for credit unions is using strategic mergers and acquisitions.

I invite you to continue reading the article the Credit Union Times’s focus report on non-interest income: Using Strategic Mergers and Acquisitions to Adapt.

Many credit union leaders are taking a closer look at strategic M&A as a way to accelerate company growth.

Capstone Managing Director John Dearing spoke to a packed room of credit union CEOs and board members at the “Reaching Your Members in the 21st Century” Conference hosted by CU Conferences in Las Vegas on November 11.

John talked about the strategic rationale for pursuing acquisitions and how they can be a powerful tool for growth. To be successful, credit unions must start with strategy and vision before jumping into deal execution. Throughout the M&A process, using tools for objective decision-making is also critical to moving forward in the right direction.

John drew on his experience of executing acquisitions and growth strategies with credit unions and CUSOs to provide useful suggestions for credit union leaders seeking acquisitions. Several conference attendees said the presentation provided extremely valuable information for credit unions that might be considering mergers and acquisitions.

“Reaching Members in the 21st Century” was hosted by CU Conferences, a leading conference provider for the credit union industry. About 70 conference attendees discussed the latest industry trends, from using technology, to adding value for members, to mergers and acquisitions.

If you a have questions about mergers and acquisitions for credit unions, contact Capstone today!

Read more about M&A for credit unions: Credit Unions Growing Through Mergers – Why You Should Too!

Credit unions increasingly are using M&A as a growth strategy. According to NCUA data, 90% of mergers in recent years have been voluntary and have realized greater success than involuntary mergers.

“Properly planned and executed, mergers can continue the core mission of your credit union,” said Dominic Carullo, NCUA Economic Development Specialist on NCUA’s recent webinar, “Merger Best Practices for Credit Unions.”

We wholeheartedly agree with NCUA’s assertion that credit unions need to consider M&A as a growth strategy.  According to Economic Development Specialist Bob Jones, “A recent Filene Research study looked at member value post-merger and found that on average member value improved for credit union members, and it described these improvements as immediate, material and persistent.”

New positions often were created for partnering staff and officials during a merger, making the deal a collaboration and a “win-win.”

In working with credit unions and CUSOs for more than 10 years, we have found this to be true. In the credit union industry, as with any other business industry, carefully planned strategic acquisitions and partnerships can yield great success and exciting new opportunities.

If you’re still feeling skeptical about mergers, here is why you should consider them as a growth strategy.

Merger Benefits for Credit Union

  • Improved financial condition – Credit unions in a financial decline can gain stability through merging with a financially stronger credit union.
  • Expanded or improved services – Credit unions that have merged can leverage economies of scale to provide better and new services.
  • Expanded membership – By merging, credit unions expand combine their fields of membership. The newly merged credit union now reaches members it didn’t have previously.
  • Succession plan – Typically larger credit unions attract more talented staff, ensuring a succession plan.

Merger Benefits for Members

As credit unions reap the benefits of the merger, they are passed along to their members. Benefits include:

  • More or improved services
  • Lower cost of services
  • Better loan and dividend rates

Whether or not you are actively considering using M&A in the near future, it’s important to have an understanding of M&A. As more credit unions begin using proactive acquisitions which change the industry, equipping yourself with the right tools for growth, including M&A, can prepare you to execute your growth strategy at any time.

To view NCUA’s webinar “Merger Best Practices for Credit Unions,” visit their website http://www.ncua.gov/resources/oscui/pages/videos.aspx

 

Successfully executing a deal can be tricky, even if you already know the acquisition prospect. In fact, your existing relationship may complicate the deal. Acquiring a company that you’ve worked with can make it difficult to objectively evaluate the opportunity.

Bonnie Ciuffo, President of South Carolina Financial Solutions (SCFS), and John Dearing, Capstone Managing Director, discussed these dynamics in the webinar “Finding the Right Equation for Successful M&A” hosted by NACUSO on June 26.

Last year Capstone guided SCFS, a credit union service organization (CUSO) that provides benefit solutions, in its acquisition of long-term business partner Innova Plan Strategies. So the webinar was informed with plenty of shared experience.

“Just because you have a great relationship with the owner doesn’t mean it’s a great acquisition,” Bonnie said.

Even when it is the right decision, many pieces of the puzzle must fit together to successfully execute the deal. It’s important to understand the owner’s motivations for selling and to facilitate open communication between parties to put together the right equation.

Bonnie and John used the SCFS-Innova acquisition in the webinar to illustrate the M&A process for CUSOs and how the deal was structured to the mutual benefit of both buyer and seller.

For more information and to view the webinar archive, please click here.

Non-interest income is a hot topic in the credit union industry. Check out Capstone’s infographic on non-interest income below. Click on the image for a closer look.

CU Trends Non-Interest Income

 

How can you generate more non-interest income?

Many credit unions and CUSOs are turning to external growth and mergers and acquisitions to generate more non-interest income. Find out if  external growth is right for your organization.

Capstone brings a unique perspective, having successful facilitated deals for CUSOs and for companies in other industries. To learn more about proactive, strategic growth options for credit unions and CUSOs, please contact Capstone.

I was invited to write an op-ed for the Credit Union Times for their focus report on growth strategies.  While there are a variety of options to consider when exploring implementing new products and services to grow, credit unions can only grow by meeting the needs of future members.

I offer five ways to pursue growth in my piece in the Credit Union TimesKnowing When to Grow, When to Go.

Photo Credit: crdotx via Compfight cc

Every company is for sale, for the right equation. This maxim applies to companies in any industry, including credit unions and CUSOs.  In “CUSO Consolidation Should Begin With Benefits” the Credit Union Times reports insights from Capstone’s webinar with NACUSO  presented by Managing Director John Dearing. Read the entire article here: “CUSO Consolidation Should Begin With Benefits.”

 

Photo Credit: Andrea via Compfight cc