Paladin Blog

Impact of Core and IT on Mergers and Acquisitions: Protecting Shareholder Value

Posted by Aaron Silva on Jul 12, 2018 11:27:09 AM

The vast majority of middle-market community banks and credit unions will at some point explore acquiring or being acquired because M&As are one of the quickest and most effective ways a bank can scale up, expand reach, and grow. Unfortunately, many of these banks have no choice but to watch lucrative M&A opportunities pass them by because they unwittingly agreed to grossly unfair and inequitable terms in their core and IT contracts.

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Tags: Contract Negotiations, community banks, vendor merger, M&A

Listen now: Evercore ISI interviews Aaron Silva

Posted by Aaron Silva on Jun 14, 2018 10:36:43 AM

Global independent investment banking advisory firm Evercore ISI interviews fintech expert Aaron Silva on all things banking. Listen now to Aaron's predictions for the banking industry: 

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Tags: Contract Negotiations, community banks, Fiserv, Fidelity, Jack Henry, Vendor consolidation, Credit Unions, vendor merger, M&A, Fintech, open banking

Cost Control: Ferreting Out Hidden Costs to Improve the Bottom Line

Posted by Aaron Silva on Mar 26, 2018 10:28:19 AM

As we enter 2018, it's more crucial than ever for local banks to focus on their bottom lines, and for credit unions to improve member value. The number of banks with less than $100 million in assets has declined by more than two-thirds since 1995 — due in large part to big banks usurping market share. 

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Tags: Contract Negotiations, community banks, Credit Unions, M&A

New Beginnings: Strategies to Avoid Mistakes of the Past with Core Banking Software Suppliers

Posted by Alex Lopatine on Mar 15, 2018 1:22:39 PM

It's the beginning of a new year, and that equates to an opportunity for a fresh start. For community banks and credit unions, this means the chance to review what obstacles have held them back from competing with the big banks on a level playing field — and to develop strategies to overcome those hurdles in 2018. 

Since 1994, the loan market share held by big banks (financial institutions with assets greater than $10B) has relentlessly increased from 50 percent to approximately 80 percent. This has left community banks and credit unions with less than a quarter of the overall market — an already meager slice of the pie that is steadily shrinking.

So what happened?

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Tags: Contract Negotiations, community banks, Credit Unions, M&A

Core IT Suppliers Join the Joan Crawford Fan Club

Posted by Aaron Silva on Jan 22, 2018 7:00:00 AM

Sell your bank and face the wrath of the Core IT oligarch’s power when they unfairly levy termination fees that typically range from 50% to 100% of remaining contract value.

If you’re fortunate enough to be the acquiring institution in the same M&A  deal, don’t get too comfortable watching their shareholders take the low blow as you handicap the purchase price to adjust for their misfortune. The Core IT supplier “partner” will inflict that wire-hanger whipping as soon as the definitive deal is inked.

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Tags: Contract Negotiations, community banks

The Incentive of Doing Nothing

Posted by Aaron Silva on Jun 15, 2016 8:00:00 AM

For community financial institutions, it’s customary that every 5-7 years the decision must be made to either stay and renegotiate with their Core and IT provider or embark on a new contract with a competing vendor. When this time comes, it’s important that all decision makers have the right information, which can create more work for the banking staff with minimal incentive.

After many years of fighting on behalf of community FIs and countless conversations with senior bank executives, the truth is that senior management and their staff are not always receiving objective and unbiased information when it comes to identifying the best options for their franchise because there is so much extra work involved (with a future core conversion) —which in turn creates an incentive to stay put with their original vendor.  

In a recent conversation with the COO of a past client, an $800 million asset bank in New England, I learned that he believes his staff, and just about the staff of any community bank, has a natural incentive to want to do nothing when it comes to the question of staying or going. 

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Tags: Contract Negotiations

No Such Thing as a 10-Year Core IT Contract

Posted by Aaron Silva on Feb 20, 2015 4:14:00 PM

How can any of us bet on the function and value of technology 10 years from now?  When you think of the question a few times the answer appears obvious.  You cannot.  It would be impractical.  Unreasonable by any measure.  However, vendors are doing a great job of convincing banks and credit unions they need a 10-year deal.

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Tags: Contract Negotiations

Cough! Cough! Are You Ready for the Financial Service Industry Plague?

Posted by Aaron Silva on Aug 4, 2014 6:41:05 PM

Cost Inefficiency – An Industry Plague

By Aaron M. Silva, President Paladin fs, LLC
asilva@paladin-fs.com

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Tags: Contract Negotiations, community banks, Credit Unions, Editorial

New Ideas for Achieving Unexpected Returns for Shareholders.

Posted by Aaron Silva on Aug 4, 2014 9:37:00 AM

A 2nd annual report from the Business Performance and Innovation Network (BPI Network, www.bpinetwork.org) focuses again on the impact that core and IT services contracts have on community financial institutions nationwide.  The 2013 report titled “Less Burn, More Return” was well received by the market and generally panned by major core service providers. The newly released 2014 report, titled “The Core Way Forward,” will have a positive reception by bankers as it is a tome of informational data and analysis, never before assembled in one resource.  The report includes:

  •       The results of a comprehensive ‘state of the industry’ survey sent to 15,000 bank leaders. 
  •       A line-by-line analysis of 54 actual contract negotiations between bankers and vendors ranging       between $150 Million to $5 Billion in assets.
  •       Specific M&A section that details real-life examples of contracts’ impact on mergers.
  •       Insights and advice from industry experts including legal, compliance and investment bankers.
  •       Peer reviews and commentary on their experience negotiating contracts with core services vendors.
  •       An assessment of the impact of vendor consolidation on a bank leaders ability to negotiate a fair market value contract.

CLICK IMAGE TO READ THE NEWLY RELEASED CORE WAY FORWARD REPORT:

 

Key Takeaways from the Core Way Forward Report.

Impact on Mergers is Real.  The number of mergers has grown since the Less Burn, More Return report was issued in 2013 and of those that have taken place, an ample number were tracked in BPI’s, 2014 The Core Way Forward report, which allowed for actual and quantified measurements of impact. I believe, as the valuation of an institution moves away from tangible book value to profitability, we will see the entry and exit clauses of these agreements reaping havoc on M&A deals going forward unless bankers are willing to attack these agreements in advance, rather than waiting until they already have an LOI or purchase agreement working with another bank.  The Core Way Forward report points out that leverage with vendors is wasted if you ask for help after word on the merger is out.

 

Vendor Consolidation: Vendor consolidation has turned the tables of negotiation even further against the industry.  With so few vendors (the report details a total of 5, 3 of which control 85% of the market) there is little competition. Demand for core and IT services [according to BPI’s survey] will increase for the foreseeable future.  An oligopoly has formed and there is real concern that banks will have a difficult time getting a fair shake.

 

Hard Market Data Trumps: No longer can institutions go into a renewal situation with professional negotiators unless they are armed with information that can be backed up and substantiated. Very little efficiency in pricing exists, according to BPI Network, and this may be a result of vendors delivering a “get what you can” approach to pricing. Companies like Paladin, which is equipped with the Paladin Blue Bookdatabase, are keeping vendors fair and allowing for an introduction of favorable terms and conditions into contracts. Accomplishing these conditions is not without great amount of time, effort, finesse and experience.

 

Over the coming months Paladin will break apart BPI’s The Core Way Forward report into small, manageable and easy-to-understand chapters. These sectionals provide education and analysis of the material, as well as additional information and insights not found in the report.

You may also find this article in the not yet published quarterly magazine from Community Banker's of Washington's.  Click here to view Summer 2014s publication.

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Tags: Contract Negotiations, Paladin Research, community banks, Credit Unions, Editorial

Clint Eastwood Designs Most Banking Events

Posted by Aaron Silva on Jun 3, 2014 3:20:00 PM

I think it may be true. Clint Eastwood has been secretly behind the physical design and layout of most banking and credit union events for years. This theory dawned on me this spring as I attended and spoke at many national and regional events all over the country. Until starting Paladin fs in 2008, I spent most of my career as your typical vendor selling IT services to bankers. Today, I spend all of my time representing bankers in difficult Core IT negotiations with their vendors (Fiserv, FIS, JHA, S1, Q2, etc). Back in the day, attending and exhibiting at events became almost obligatory if you wanted to "get noticed" or hoped for someone to buy your wares. Being stuck behind a booth in the exhibit hall next to three of your competitors with flashier pens, higher-priced golf putters is a difficult and thankless pursuit. The days are long laced with many hours of boredom while your targets attend breakout sessions or play golf. Then, two to three times a day, a stampede of bankers rushes past you to acquire coffee, food or alcohol strategically located at the other end of the hall - that reminded me of the famous 1977 Clint Eastwood movie, The Gauntlet.


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Tags: Contract Negotiations, Paladin Research, community banks, Fiserv, Fidelity, Jack Henry, OSI, Vendor consolidation, Credit Unions, bank events, credit union events