FOREST GROVE, Ore. — The face of CU mergers is changing, moving away from those simply focused on creating size to unions that are more strategic, according to David Bartoo, president of Merger Solutions Group.
"In today's economic environment, there is gravitation away from asset-based mergers — the bigger the better — toward mergers that are much more calculated and strategic," Bartoo explained. "They are specifically oriented around capitalization and geographic position. For example, a very large credit union with a poor balance sheet now is not very desirable and is considered a much higher risk versus a smaller, well-capitalized credit union in a good geographic position."
Bartoo believes the change is being driven by economic pressures and concerns over the stability of lending portfolios. "The larger asset classes are being deemed more risky," he said. "A lot of credit unions are shying away from them and are being more conservative in their merger decisions."
Other merger trends and observations:
- Not many mergers of equals: "Mergers of equals are rare. Less than 3% of all mergers in the last five years have involved CUs within 75% of total assets of each other.
- Smaller CUs still acquiring: "A lot of people assume that only large credit unions are doing the acquiring. But... it is very evenly split among credit unions of different asset size ranges - from $25 million to $100 million."
- Accounting rule changes are slowing merger activity: "Going from the pooling to the purchase accounting method may have some credit unions thinking that the expense of the merger is not worth it. Under the purchase method you have to have a full evaluation by an accounting firm, and that may run from $5,000 to $50,000. If I am a $100-million credit union, am I going to possibly spend $10,000 to $15,000 to acquire a $4-million credit union?"
- Difficulty in assessing the success of mergers during the recession: "It's now hard to say whether a decline in performance is due to a poor merger decision or simply the economic environment or the metropolitan area the credit union is in." For info: mergersolutions.com.
