Southern Bank Acquisition

Introduction

Mergers have become common inside industry. Merger of Northern banks has been accepted by Southern banks. As merger is favoring each bank in expansion of their business premises for enhancing performance through decreasing unhealthy consequences of individual firms, this will also help them to fight against other major businesses in the industry. Merger of Southern as well as Northern bank was then declared formally (Bindal, Bouwman and Johnson, 2020). Merger’s additional process requires knowledge of various factors along with arrangements for reaching the specific goal. There are speculations in a large amount which concern merger event between Sothern and Northern Bank. This process initiated in 2016, after which decision is still pending. With the offer of about $1.5 billion has been made by Northern banks in the stocks. This merger has a main goal of enhancing processes of these two banks, synergy as well as streamlining of values of both banks, in the end making whole merger event successful. For looking after merger process, allocation of integration manager has been done, but, major challenge is gaining of approval from key stakeholders. It is need of time to consolidate both banks’ processes, enhance the synergy, as well as fight risks occurring because of Eastern bank. For arriving to useful strategy, this complex process needs further inspection. This research describes combination needed for merger completion along with effects of the key selections made for merger. Internal along with external folks having interest in this process were approached to look after merger and the results of this process are also mentioned in the report.

KEY DRIVERS

External drivers

Pestel Analysis

Before starting the process of merger, most important and significant thing is analysis of the impacts of macro environmental factors affecting this project. For this purpose, Pestel analysis is done as shown below.

Political Factors

There are many factors that affect merger of both the banks, but the most important one is the political conditions. Government support is crucial especially in the case of banks. Rules that are set by the governing bodies seem quite extensive needing much revision as well careful implementation. The policies of the government as well as current legislation must be carefully reviewed for avoiding any kind of legal issues (Bougette and Turolla, 2008).

Economic Factors

Any country’s economy is its external driver that can directly affect performance as well as survival of any kind of firm being set up. Recent policies of taxation and the rates of inflation both domestic and international should give fair planning share related to these kinds of ventures (Blakely and Leigh, 2013). 

Social Factors

Demographics, priorities of people, services usage and the lifestyles must be studied cautiously in order to fully understand the needs as well as wants of these people (Hersey et al., 2007). The regional or the ethnic values as well as employees’ ethical issues are internal factors because they arise such concerns that need careful dealing as bank’s policy must be made more clearer to them.

Technological Factors

Latest technological advancements must be considered along with this merger for gaining competitive edge as well as long lasting prosperity of organization. E banking is a new technological concept that is becoming famous in both banks and this can pose threats for them in the future (Christofi et al., 2019).

Legal Factors

Laws that are governing activities of banks like laws regarding consumer protection are enforceable with steadiness so, all of this and legislations that are set for the organizations must be strictly followed.

Environmental Factors

Management system of banks should be in a way that their operations should promote the positive ethnic values of business and also favor the sustainability. This can result in improvement in reputation of banks and will reduce the pressure of NGO’s as well as other groups of media.

Market Drives

USA has various financial institutes of the world. There are various largest banks in USA includes JPMorgan Chase, Wells Fargo, Citibank and Bank of America (Jizi et al., 2014). There is total 4519 banks in USA who are supporting the economy of USA. The new merger of North and Southern bank will be in top banks of USA. The merger of both banks will help them to gain more market share and increase their competitive advantage in banking industry. The Northern bank will diminish the elements which have lower rating and performance with integration of processes with higher ratings which can help them to sustain in competitive environment. Some processes will be combined and some will be terminated.

Internal drivers

While considering merger, the first concern should be detailed diagnosis of organization for understanding gaps and deficiencies in reaching desired position. For organizational diagnosis, first step is selection of right conceptual model. After that comes, decision to take the relevant information avoiding the irrelevant information. Information can be gathered by using questionnaires, case studies, observations, surveys and the focus groups. After this the collected information is analyzed and interpreted for productive outcomes that have resulted from the process of merger. For increasing organization effectiveness and for understanding necessary changes that are needed to be made, SWOT analysis is done for making things clearer. It is discussed below:

Internal diagnosis

In depth analysis has shown that various internal as well as external factors affect the performance of banks. In current situation, Customers along with the stakeholders are external drivers affecting banks. Whereas, Employees working in the company and the management are internal drivers. Banks’ resources are the internal driver. SWOT analysis of merging event of Southern and the Northern banks is shown in table below. Pooling of resources further can cause value proposition and increased funding. However, a lot of ambiguity is created in process of merger because of staff of mixed quality.

Strengths

Organization can have competitive advantage because of the quality it provides for its products and the services. Customer dealing and answering customer queries and achieving the customer satisfaction ultimately is also bank’s major strength. Product development of banks and increased saving accounts experience of Southern bank. Positive and effective negotiations between banks for merger (Levy, Waksman and Sheridan, 2020).

Weaknesses

Weaknesses of the banks are limited experience of online advertising, limited success of social media as well as low customer loyalty. Underperformance of northern bank in its marketing and customer relation services. Furthermore, failure to maintain values as well as culture of both the banks can also be great setback for these banks (Issangu, 2020). 

External diagnosis

Opportunities

Broadening geographic reach, expansion of the customer base through making superior offers, forming the online marketing expertise and forming the customer loyalty are the opportunities that must not be missed in order to make benefits for growth as well as prosperity of bank. Increased benchmark rate also enhances the saving account demands.

Threats

High inflation level, uncertain conditions of market, increased risk of data breaching, privacy issues as well as online fraud are the major threats banks are facing. For dealing with them appropriate strategy is needed for avoiding any kind of hindrances in organization functioning. Huge competition among banks in US banking industry (approx. 4000 banks).

Key Decisions

The several benefits posed by merger and acquisition become the key reasons for mergers and acquisitions between various banking institutions. These key drivers may be present both within and outside the organizations. Firstly, merger and acquisition between banking organizations helps such institutions as a whole to progress at a high pace. It assists the incorporated institute to reach new markets and customers facilitated by both banks swiftly. It provides the fused institutions with more capital; it enhances the array of services in relevance to lending and investments and it gives both the institutions a larger geographic area to carry out their operations which eventually leads to swift and well ordered acquirement of goals and objectives (Marks and Mirvis, 2011). Mergers are the preferences for reducing horrible and the typical performance with the help of merging employer’s strengths. Integration plan has been drafted by taking the strengths and weaknesses of financial institutions as well as evaluating them with the exceptional nine choices that are associated to the aggregate of various diverse topics that work as one single unit altogether. Additionally, another important factor which signifies mergers and acquisition is the strengthening of human resource, teams and talent pool of the unified body. Mostly some of the staff of the two banks is laid off but having access to an enlarged talent hub helps in choosing more capable and skilled workers which eventually results in better organizational performance. Banks provide loans to their customers and to fulfill such the needs related to such services; banks themselves acquire complementary loans (Goksoy, 2019). If both the banking institutions have such loans after merger and acquisition the interest on loans or debt is reduced because instead of working as two separate entities these act as single unit. Integration plan is dependent on these decisions described below;

1. Percentage of laid off employees
2. Percentage of laid off managers
3. Practices of HR
4. Product portfolios
5. Loan approval process
6. Branch network
7. Implementation period
8. IT systems
9. Bank name

Choices were made for saving merger and the cash profits’ general value. Considering branches first, three options are there that might help in maintaining all branches. If branches of both the banks are in the same town then southern branches of the company can be shut down in that area. Financial savings can be attained through closing the unnecessary branches. Therefore, rationalizing the branches has proven to be the good and nice decision for maintaining first rate branches.

Percentages of the layoffs of mangers as well as employees are equal for banks as stated in the agreement. It turned to be about 20% of both the managers as well as employees to shape up every item in order. This decision has been taken as branches may reduce in number causing the already skilled professionals to escape and the new arrivals in the merging situations will be needing training. However, a preventing force exists that is inquisitive regarding this assignment and the Elaine Murphy, who is director of HR at Southern bank argues towards the following selection because she wants to retain maximum number of her staff.

Considering human value added procedures, primary selection that was made is to provide the explanations for the practise, because the Northern practice proved to be costly by offering those cars that were above the 12 grades and have lowered interest rates offered to staff. However, with the thorough debate as well as criticism of the person who was involved in the mission, Northern habits changed sooner or later.

The set of product file of both the banks alternate. These firms exact as well as some missing document series therefore, they have agreed to rationally diagnose product portfolio and best among both may be diagnosed then delivered to the mixed business devices. Selection of procedure of mortgage approval has been made to upgrade Southern’s approach to the Northern’s as it was much difficult to hold every process in place and to feature two mixed form procedures. In addition, this has stored general expense of creating a new one. Upon obtaining the instances of the reactions, data or the responses from people involved in the task, maintenance plan was updated or modified to preserve as well as lay out brand new process.

Since the Southern Financial Institutions’ IT systems have updated now, they were now able to replace them with the Northern and streamline all the gadgets in one single format. But this has changed into moving to the value, so that the choices have been fixed for rationalizing the IT structures. The bank’s call has brilliant social impact. People who seem inquisitive regarding Southern challenge decided to hold their call of bank. But there may be no advanced merchandising of both banks’ effective merger. As a result, it was decided to give new name of commercial enterprise that was merging as financial institution of NS. This collection is becoming luxurious because it called for the new signs and the labeling, but some of the fees were very crucial as well as necessary to spend on the increase of the business. The average time taken to make use of these options improved in the five months because of the fact that they were made in less time with high price, and the training packages were additionally regulated as well as achieved so that the workers become less complicated using new system. However, taking the greater time has also reduced money income

Culture Practice and Employee

During merger or acquisition, it becomes significant for the higher authorities to settle down cultures and practices used in the organizations. This settlement helps in producing a more, well ordered, efficacious and productive institution. Moreover, this negotiation aids the human resource of both the entities to adapt each other’s values and cultures together with their policies, practices and operations. In this scenario the major driving force behind the merger and acquisition between the Northern and Southern Bank is the extension of Northern Bank to the Southern part of the country to serve the existing and prospective customers present there.

For trouble free acquisition of Southern Bank; both the banks have negotiated on a number of factors. At the first place; they have decided on terminating around 20% of the managers currently employed. Furthermore, the Northern Bank will individually appraise the banking services and the performance of various branches of Southern Bank. This will help the Northern Bank in terminating the poorly performing managers of Southern Bank and appointing its own capable managers. After the acquisition; on the basis of performance evaluation around 25% of the workforce of both the banks will be terminated for effectual working of the unified body.

Considering the banking products, services and infrastructure; the Northern Bank should carefully assess and decide which of the services and products and segments of infrastructure are helping the banking operations positively and which ones are harming them. It should be contemplated that it is not required to alter or terminate a product or service completely because a large variety of banking products and services attract large number of customers. Additionally, new IT infrastructures should be installed for effective management of alterations made in both the organizations. The services which are not profiting the organization should be removed. For example; the Southern Bank delivers incentives to its employees depending upon the organizational revenue generated. This leads to allocating extremely high incentives to the customers when the profit margin is inflated. This practice being a burden on organizational revenue should be restored with standard incentive policies.    

Stakeholder Analysis

Stakeholder analysis can be defined as systematic series as well as analysis of the quantitative along with qualitative records of stakeholders to assess whose hobby must be prioritized in the sense of challenge. Evaluation of the stakeholder is very important as it is defined by Freeman (1984) that stakeholders can influence group’s overall achievements and that the stakeholders have got the ability to get the chance of joining the company again. It is therefore important to carry out stakeholder assessment in order to benefit the company. At first, stakeholders from two banks need identification. However, it is very significant to recollect the stakeholders outside method of merger, and therefore, the stakeholders can be recognized as the internal as well as external to challenge, including their strengths and the positions.

Identification of Stakeholders

Stakeholder’s identification with idea of the attachment is very huge, as it shows the clear perception that should be deal at first, hence stakeholders are mapped in primary and secondary stage.

Stakeholder Mapping

The Stakeholder Mapping consists of listing out the stakeholders, evaluating their characteristics and presenting the results in a logical way. The stakeholders were mapped using the stakeholder register which help to understand their interest and influence rate. Following matrix, to categorize the stakeholders is very significant as being compatible with their effect as well as importance within merging system. Diagram beneath indicates who has to be cared for what value.

Stakeholder influence networks

It is very difficult to reach all business stakeholders groups, as venture supporters as well as opponents may also have pleasure of different levels, and thus it is very important to have impact on community, as the action on one stakeholder may produce the dynamic response to the other stakeholders in order to deliver final results that are fine (Bourne and Walker, 2005). Analyzing the interconnection as well as relation of stakeholders in the diagram below is intended to illustrate how stakeholders need to be treated to handle others. Stakeholder can affect each other in a multi dimensional way, and thus the stakeholders of strength hobby grid are mapped in the matrix underneath.

Power, Legitimacy and Urgency Matrix

Legitimacy is assumed validity of the stake same as energy is the ability to put in motion, compelling some to coerce other’s actions. Importance of the parties concerned is the level of focus and significance of the stake or diploma of which the argument needs the urgent interest. Similar movements of stakeholders can affect the other stakeholders; their strength is often defined as in relation with their function inside network of the other stakeholders. Legitimacy, urgency typology and power determine which kind of stakeholder is outstanding and which one wants very less attention (Halcro, 2018).

Stakeholder Typology (Mitchell et al., 1997)

Following typology of stakeholder, legitimacy, the electricity, and urgency of stakeholders, they are classified in diagram below.

Stakeholder engagement

It is defined as mechanism through which businesses connect and get the chance to know stakeholders they have. By knowing them, companies can understand in a better way what they actually want, at what time they want it, their involvement level and how their plans can impact the goal they have. Moreover, their communication will be improved and they will be able to re think about their strategies as well as operations, thus providing benefits in long term like first mover benefit and brand reputation (Viglia, Pera and Bigné, 2018).

Risks and Impacts on the Project

There are various kinds of risks that may affect integration plan very badly as well as contribute to the poor results after merger. At first, risk as well as banks’ compliance culture is very different. Different methods exist regarding handling or ensuring the regulations. In the event of disparities in risk handling and enforcement, this may substantially harm the credibility of the banking industry and can result in a decrease in profitability. It is very important to have cultural fit. As cultures of these banks are very different, employee integration, policies as well as practices can cause poor fit in return that can reduce the level of productivity as well as performance (Nikolova et al., 2017). Finally, effect of mergers as well as acquisitions on the customers may not be certainly known. Some of the customers might prefer the one bank against other one because of availability of certain service and even because of their practices (Shaban and James, 2018). Additionally, the northern bank may employ new IT infrastructure by creating uncertainty between customers. However, these risks are managed through careful and frequent, educational communication.

Conclusion

Helping employees of Southern bank in separating the past from present will be best strategy. It is very essential to allow them to better understand that all of them are integrated to the Northern bank practices as the Southern bank is acquired by the Northern bank. It will also emphasize that the grades offer chances for the growth of the top performers by promotions. The empowerment of an employee can also be regarded as an option. The empowerment of the employees will permit them make more of decisions that will affect their workplace or workstation. The reservation and termination of specific business practices and procedures is another key factor to be considered while mergers and acquisition. The functions and working of both the banks might be dissimilar which makes it difficult for the workers to observe certain procedures or practices. To overcome this issue the Northern Bank should deliver an induction training to Southern Bank’s workforce. This will assist the employees in understanding the practices or procedures followed by Northern Bank and will also them in successfully performing their job roles and responsibilities. The termination of practices such as providing incentives to workers on the basis of organizational revenue by Southern Bank will help Northern Bank in reducing unpredictable business practices and will increase productiveness and efficiency in workforce.  I would need to postpone the decision in order to permit employees of Southern bank to recognize new terms. It is not going to be hard to change psychological contracts as conditions are much better in many cases. It is very necessary to consider managers of the Southern Bank as the role models which accepted change. As there is much need of the magic leaders for increasing change acceptance.

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