In this Blog Post Learn:
- How a bank overpaid one vendor by $5 Million.
- Termination expenses are a Red Herring.
- Lawyers always get paid (well, you knew that).
Fresh off of a 5 week speaking junket, through Austin, Vegas, Naples, Phoenix and Honolulu, I have learned a lot about what is NOT being discussed amongst bankers when it comes to M&A. I sat through several merger panels and expert speakers across all these events sponsored by ABA, ICBA, IBAT and NAFCU and not one was talking about the clear and present danger of mismanaged and unattended Core IT agreements nor their relative impact to shareholders during mergers. Lawyers and investment bankers are not talking about it [Core IT contracts] because, frankly, they don't know much about the topic and lack the inside knowledge and expertise in this area. There are a few exceptions out there but by in large, these professionals are short on knowledge and long on fees.
In October we highlighted a clear and present danger resulting from the further consolidation of the Core IT vendors. Fewer vendors exist than ever before and the impact to your service level, legal rights and business options are even slimmer if the institution does not make restructuring your relationship and contract a strategic board-level matter. We teamed up with attorney Gary Findley to put on a national web seminar on this very topic that was widely attended by CEOs and CFOs of all sized institutions. With tremendous feedback we have scheduled an encore presentation on December 10th and 11th if you are interested in joining and hearing some proprietary legal and business strategies on how to manage and mitigate this major risks area please attend.
Trekkie fans will understand the reference to the BORG and what it fees like when you don't have many choices. The assimilated Captain Picard provides this famous line, "...from this time forward you will service us." With the recent purchases of OSI by Fiserv and Harland by D+H many bankers believe the line could be rewritten, "...from this time forward ONLY we will service you...And you have nothing to say about it."
As a middle-aged man I ask this same question of myself all the time. Luckily, my wife is nice enough to not bring it up so often as she might otherwise like to - which is good since this is what makes her a great wife...she lies to me (about me). And of course I know what to say when she asks that question about how she looks in those new pants she just bought too.
I was maybe only 5 or 6 years old when my father took me to the Cow Palace in San Mateo, California to watch Ali and George Foreman fight in what is known as The Rumble in The Jungle on closed circuit television broadcast on giant movie screens. I don't remember much of the fight except that I recall how surly the crowd was and all the smoking. My Dad was always, and still is, a big boxing fan and it was a favorite pastime listening to Howard Cosell describe Ali fights. I watched that fight many times in years since and grew ever more appreciative of just how masterful Ali really was in using the "Rope-a-Dope" to fool his opponents and snatch victory. In my book he is the greatest fighter of all time and like so many sports - there are lessons which can be carried into life and certainly into business.
A recent poll of 10,000+ CEOs and CFOs uncovered a very interesting result: The majority agreed they would participate in M&A in some way however, very few sheepishly admitted (3%) to wanting to sell. But I think the die has been cast.
For an institution implementing a future merger strategy, what would another $250,000+ per year in additional profit mean (without having to make a single loan)?
The Business Performance & Innovation (BPI) Network created quite a brouhaha releasing a new and unique study in May called the Less Burn, More Return (LBMR) that looks at the issues and priorities facing today’s community banks during a period of prolonged low interest margins, increased regulatory pressure and sluggish economic growth. While the study touches many different aspects of current industry business problems, it looks closely at one key area of non-interest expense (NIE) – spending on core bank processing and related IT outsourcing services. The study uncovers a major opportunity for improved efficiency ratios, profitability and franchise value. One California CEO quoted in the study completed a merger just a few months after restructuring a new 7 years deal with their core vendor that in turn added more than 7% to the merger deal for his shareholders. The data used to validate the BPI Network study was collected from surveys conducted with over 10,000 senior executives from banks and credit unions with less than $5 Billion in assets. Interviews and testimony from CEOs, CFOs, investors, and advisors are peppered throughout the 24-page report further standing up BPI’s claims and data sources. The report can be downloaded for free at bpinetwork.org – just look for the Less Burn, More Return program link.
The Fiscal Cliff negotiations are temporarily off the table as our leadership has figured out a way to kick the can down the road. At every level a qualified failure and we can all be disappointed at the entire spectacle. We all saw this coming a year ago when they manufactured the post-election fiscal cliff show down and none of us were surprised they could not get it done when those chickens came home to roost. Like most Americans I am enjoying the brief pause in non-stop news coverage on the failed negotiations. There is always something to learn from failure and so during this respite I have taken the opportunity to reflect on the mechanics of the failed fiscal cliff negotiation and outline some key similarities and observations that I see all-too-often in the community banking industry when bankers and vendors negotiate their own fiscal cliffs (albeit a lot smaller). I don’t believe for a minute that I might be the best negotiator on the planet, nor do I know anyone who might be, but the fact is over the last four years we have successfully restructured and renewed many dozens of multi-million dollar Core & IT services agreements for institutions of all sizes coast to coast. In fact, all we do here at Paladin is restructure and negotiate deals using a proven, research-driven, outcome-based methodology that doesn’t harm existing relationships. In just four years, we are approaching $65,000,000 in hard dollar non-interest expense reduction for our bank clients, averaging nearly $800,000 per deal, and without having to change core vendors (i.e. Fiserv, Fidelity, Jack Henry, etc.) or perform a wasteful RFP process (scam). We’re proud to stand on such a strong record and experience and I hope to share some of these insights with you here.