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.

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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.

Middle market companies have faced many challenges to growth, but the tide is now turning. Previously, we had observed the dumbbell effect, where at either end of the spectrum massive corporations and small businesses flourished while middle market companies were caught in between. Unlike large multinational corporations, many middle market companies cannot leverage the same economies of scale to deal with price cuts, consolidation, and regulatory challenges. On the other hand, middle market companies do not have the same flexibility as startups to move swiftly in the market.

The Dumbbell Effect

The Dumbbell Effect: Massive corporations and small businesses flourish at either end of the spectrum, while the middle market is squeezed in between.

 

Corporations Sell Non-core Businesses

While this environment was challenging, it also created a unique opportunity for those who could seize opportunity and fill the void. Now the market has shifted and instead of consolidating, many large corporations are shedding non-core businesses in order to focus on fast-growing, profitable business units. P&G is in the process of selling 105 brands to refocus on 10 fast-growing category-based business units. Recently P&G sold Duracell to Berkshire Hathaway, various hair care brands including Pert, Shamtu and Blendax to Germany’s Henkel, and its fragrance, color cosmetics and hair color business to Coty.

Growth Through Strategic Acquisitions

Divestments by large corporations can generate opportunities for middle market companies looking to grow rapidly through M&A. With acquisition, middle market companies have the opportunity to quickly execute their growth strategy, whether it’s by adding a new product or service, acquiring a competitor, or expanding into a new geographic or vertical market. Overall, middle market M&A has remained relatively stable when compared to global values, suggesting that although mega-deals may be slowing down, smaller, strategic acquisitions are still being executed. Now is the time to carefully consider your opportunities and execute your growth strategy.

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Ikea has purchased a forest in order to have better control over their supply chain. Simply put, this move is backward integration – moving “back” or further up the supply chain, closer to raw materials and farther from end customers.

It’s an interesting strategy from both the supply chain and cost perspective and also from a branding viewpoint. This acquisition will give Ikea control over the cost of lumber, which is expected to increase globally as renewable energy becomes more popular. The company is also focused on optimizing its furniture design to use trees in the most efficient way.

In addition, Ikea has run into some environmental and sustainability challenges in the past and was banned from logging in Russia for a time in 2012. Owning this forest will help avoid pauses in the supply chain and help with quality control and environmental concerns. The acquisition is a smart-move for Ikea, both for the short-term and long-term.

Although you may not be buying a forest, you, too, can explore backward integration for your business. I would recommend using a tool like the Adjacency Map to generate new ideas about company growth.

The Adjacency Map is a series of co-centric circles with your profitable core at the center. From that core there are many different, directions in which to grow — backward integration, forward integration, new customers, new markets, new geographies, new capabilities, etc. As you move farther away from the center circle, your ideas move farther from the core business.

When brainstorming, no idea is too wild or crazy; just write everything down. There will be plenty of time to evaluate after this exercise. For example, if your profitable core is a retail beer and wine store in the southern United States you could think of backward integration into wineries or breweries or forward integration into a restaurant. You could expand into the Mid-Atlantic region or even into shipping and logistics.

Simply getting these get these ideas on paper will spark your creativity and provide direction for growth.

* The Adjacency Map is adapted from Chris Zook’s book Profit from the Core.

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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.

Capstone CEO and author David Braun will present “Grow or Die: Strategic Mergers and Acquisitions” at the CUES Execu/Summit on March 3, 2015 at Snowmass, Colorado.

CUES is a leading organization dedicated to educating credit union professionals, directors and suppliers. About 80-90 executives and board members from the credit union industry will attend the Execu/Summit to hear from top experts and learn about critical issues facing credit union leaders today.

Mergers and acquisitions is especially a hot topic and many of these leaders have specifically requested more information about strategic M&A.

We are excited to be participating in this conference.

Capstone has over 10 years of experience working with credit union and credit union service organization clients. David will draw upon this expertise to offer industry-specific applications of M&A.

“I’m excited to challenge credit union leaders to think about a new way to grow – by using strategic mergers and acquisitions,” he said. “At Capstone, our mission is to help companies grow and I’m happy to equip leaders with practical skills that they can take back to their organizations and start implementing in their strategic growth plans.”

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.

Are you unusually busy? If you’re like most people the answer is yes! With the holiday season upon us, we are most of us inundated with commitments to work, family and friends.

While it might be easy to get caught up in the bustle of the season, I recommend pausing to plan your growth path for the New Year if you haven’t already done so.

Envision the big picture first. What are your long-term growth goals? We always encourage our clients to think about their dreams. Don’t be afraid to dream big for your company. Once you’ve defined the vision, you can break it down into manageable pieces such as specific goals for 2015 or goals for the next five years.

Plan out actionable items — initiatives you will undertake to accomplish each goal — and then identify and assemble the necessary resources. Each initiative should bring you one step closer to your growth objectives. You don’t have to have all the answers right now, and your plans may change, but this will help you stay focused and organized next year.

Of course, you may be well ahead of the curve with your strategic planning. But in case you haven’t begun planning for 2015, now is your chance to think about your next stage of growth before 2014 comes to a close.

Have a question about leadership and strategic planning? Contact us today.

Entrepreneurs rarely face the challenge of having too few ideas. In fact, like most entrepreneurs and business leaders you probably have a multitude of great ideas for growing your own business.

Your biggest challenge may be figuring out which of all the alternatives is the best way to get from where you are now to where you want to be.

We recommend using a systematic process to sort through all your ideas and create an action plan. Here are some steps in that process:

1. Think about your vision.

Where do you want your company to be in a year and in ten years?  All your initiatives should help you move toward this goal. If an idea isn’t helping you achieve your vision, then maybe you shouldn’t spend time on it.

2. Prioritize your ideas.

While all your ideas may seem wonderful, upon closer inspection you’ll likely find that some are more worthwhile than others. For example, if you envision taking your business national in the next five years, you may rate ideas that help expand your geographical presence more highly than those that do not. Use tools such as the Opportunity Matrix or Weighted Criteria or even a simple pro-con list to help you objectively sort through the possibilities and organize your thoughts. These tools will also give you the confidence that you are selecting the best and most important ideas for growing your business.

3. Get focused.

Without clear focus it’s difficult to move forward. If you’re all over the map, you won’t apply the time and resources needed to grow. Rather than diluting your efforts develop a plan focused on one goal and concentrate mostly on that. You can always modify your plan as time passes and your goals change.

4. Execute your plan.

As Nike puts it, “Just do it!” There comes a time when you need to move from thought to action. If you’ve done the upfront work on planning your growth strategy, don’t be afraid to pull the trigger.

By following these steps you’ll identify the ideas that will help you create a pathway for growth.

Deferring to advisors during the M&A process can be detrimental to a company, as evidenced by the back and forth over Valeant Pharmaceuticals’ unsolicited $53 billion bid to acquire Allergan, the maker of Botox.

The maneuvering over the past several months has become heated and off-track. Or as the Deal Professor column puts it:

“Some smart lawyers, bankers and executives appear to be so consumed with outmaneuvering the other side that they’ve lost sight of what their ultimate goal is: the future of Allergan itself.”

This is why company leaders should be actively involved in the entire process rather than leaving it to lawyers, bankers or other external advisors. While these advisors are important, you as the company leader are the one who will execute your strategy, including growing through mergers and acquisitions.

In addition, if you find yourself in a position where you are trying to “outsmart” the other side, take a step back. This may not be the right partner for you. It’s okay (and sometimes best) to walk away from a deal when it’s not in line with your strategy.

Leading throughout the acquisition process and sticking to your strategy will keep everyone aligned with your ultimate goal: company growth.

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Pharmaceutical companies are using acquisition to become “pointy,” or more focused.

Two recent examples are Bayer and Merck.  Bayer is focusing on over the counter medications by acquiring Merck’s consumer care business for $14.2 billion. On the other hand, Merck has become more streamlined through divestment.

As I’ve mentioned before, although divestment means becoming smaller, it can be pathway to growth. By trimming and pruning your company, you return to your core competencies and can more effectively focus on long-term strategic growth.

Not only are pharmaceuticals becoming pointier, they are also becoming bigger through consolidation. According to Bloomberg, there were $118 billion in healthcare deals announced in April 2014 compared with $175 billion in deals executed in 2013. By acquiring scale pharmaceutical companies can sell more products and have better leverage for negotiating with customers.

 

Photo Credit: Charles Williams via Flickr cc

Although imitation may be the sincerest form of flattery, it doesn’t guarantee success. Assuming that the success of one business assures the same result for yours is a bit absurd because fundamentally the two companies are different, each with its own challenges, strengths, cultures and dynamics. You may think this concept is self-evident, but I’ve seen many executives approach their business strategy this way.

It’s important to remember that businesses in the same industry, even competitors, have very different strategies. For example, think about how Target and Walmart operate. Blindly taking another’s strategy and dropping it into your business would be like using a blueprint for an apartment high-rise to build a single-family home in the suburbs. It just doesn’t work.

That’s not to say you can’t learn from others or adopt best practices, but ultimately you – not your competitors – should drive your business strategy. Focus on yourself: identify the best opportunities and best growth strategies for your company. Leave the copying to the cats.

Photo Credit: Christian Holmér via www.christianholmer.com cc

Facing a stagnant market, retailers of consumer staples have turned to aggressive discounts to drive growth. According to the Wall Street Journal, more than 50% of consumers’ purchases include markdowns!

More Discounts is NOT More Growth

Businesses in non-growth or declining growth markets understandably must find new ways to capture market share. However, offering more discounts is not a long-term strategy. As Deutsche Bank analyst Bill Smitz puts it, “When we look at some of the promotional pricing out there, it’s pretty clear someone has lost their mind.”

If consumer demand is shifting, no matter how many attractive discounts you offer you’ll never be able to increase your market share or grow revenues in the long-term. Discounts do not grow revenue or spark confidence in the market.

Pockets of Growth

Despite a decline within some sectors in the consumer products industry, there are pockets of growth, especially in organic and fresh foods. Now more than ever we’re seeing that you can’t make blanket statements about a specific industry.

So, while cereal or soda companies may be struggling to grow, makers of fresh juices or organic snacks may be thriving. Really, one must dig deeper to full understand the industry dynamics and the best path forward for your business.

Hopefully, retailers will move away from discounts and instead focus on sustainable ways to grow revenue, like expanding products and capabilities or moving to new geographic markets.

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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.