Mergers Slowed In 2010
FOREST GROVE, Ore.-The pace of CU mergers actually slowed in 2010.
CU mergers are on pace to reach 175 for the year, Merger Solutions Group President David Bartoo said. Last year 229 deals were struck, following 242 in 2008. The decline is part of a five-year trend despite a recent sharp increase in the number of distressed mergers.
Bartoo, who predicted in January that CU mergers would decline again or flatten in 2010, said the average asset size of mergers is down this year, as well as total asset volume of mergers, which dropped by 25% over 2009.
Bartoo attributed the latest decline to the economy making CUs more cautious about working deals and reducing the number of healthy local merger partners. "You start adding up all these factors and they weigh on credit union decision-making and it slows down the entire process," concluded Bartoo, who was aware of a recent merger that took three years to complete.
A big consequence of the economy is CUs interested in merging have fewer local options. "Much fewer 'buddy' options and opportunities in a merging credit union's backyard," stated Bartoo. "You must spend the time and emotional expense to find the right partner, which is not easy. It is a very emotional situation calling someone you don't know to see if they want to acquire you. It's much harder than calling someone you have known for 25 years."
CEOs of CUs seeking to merge out are also more hesitant today since finding a job isn't as easy during the recession, observed Bartoo. "The economy has made it difficult for someone who is not ready to retire to merge themselves out of a job without guarantees or the right plan in place to protect employees while providing value-added member benefit."
Increased concerns over hidden problems is a contributing factor, and the sharp rise in the number of distressed mergers underscores the due diligence CUs must perform when considering consolidation.
"In 2005, 375 mergers were approved and less than 35 were labeled by NCUA as distressed," Bartoo said. "So less than 10% were distressed and less than 5% of the volume was distressed. This year distressed mergers account for 33.5% of total mergers and 37.5% of the volume. Healthy mergers will be under 130 for 2010."
Looking ahead to the outlook for mergers in 2011, Bartoo predicted the number of mergers will not rise more than 20% or drop over 10%."