The Recipe for Executing a Successful Merger

Although every merger situation is unique, we have identified five prerequisites for achieving a successful merger negotiation.


As credit unions continue to experience low growth and heightened competition, mergers are increasingly emerging as a strategic imperative. For large credit unions, a merger can represent an opportunity to acquire new SEGs and geographies and achieve greater scale economies. For smaller credit unions, a merger can offer a broader array of products and services to their members and greater financial stability to employees.

But what are the prerequisites for executing a successful merger?

Five Ingredients for Executing a Merger

Every credit union merger scenario is unique. The particulars related to the credit unions’ respective histories, boards, membership, etc. make it difficult to point to specific reasons for why certain merger discussions succeed and others fail. However, based on a series of conversations with a number of credit union executives, we have identified five common prerequisites to a successful merger:

1. A compelling value proposition

Every merger discussion must begin with a well-articulated value proposition. Both credit union boards and management teams must understand the rationale for the merger and appreciate the tangible benefits—in terms of products, services, rates—that the merger will bring to the members. According to the CEO of one large credit union, “I had to invite the Board [of the smaller credit union] to visit our offices so they could see in person how their members would benefit…. Once they appreciated how we treated our members and saw the breadth of services that would become available to their members, they were sold.”

2. Open-minded stakeholders

In any merger negotiation, there are multiple stakeholder interests that must be addressed. While what is in the best interests of the members should be the ultimate factor in deciding whether or not to merge, it is often the particular interests of the board and management team that determine the issue.

According to one CEO, it is important to perform a stakeholder analysis to determine who will honestly entertain the idea of a merger and who may oppose the concept. A long-tenured board member, for example, may be more emotionally attached to the concept of credit union continuity despite evidence that a merger would benefit the members. However, sometimes even a long-tenured board member will surprise you and act “as a true steward” in the best interests of the members.

The key to a successful merger negotiation process, says one CEO, is to identify the influential stakeholders on the other side of the table and address their concerns. Once their issues are addressed, they may be able to influence others.

3. Good timing

Timing can be the difference between a successful merger negotiation and a failed attempt. Says the CEO of a small credit union who merged with a larger credit union, “our merger discussions moved quickly because we had been speaking with several other credit unions about a merger. Through the process we had learned a lot about ourselves and knew what was important to us.” By the time the eventual merger party approached the credit union, “our board was receptive to the idea.”

Persistence is one way to ensure that one’s overtures have a better chance of succeeding. According to several CEOs we spoke with, it takes “a lot of leg work” to arrive at the stage where a merger is a realistic possibility. One large credit union stated that it took nearly five years to convince a smaller credit union that a merger was in its best interests.

4. Fair treatment of people

To accomplish a merger, both parties in the negotiation process must come away feeling that a fair outcome was achieved. The concept of “fairness” will vary with each situation. In general, however, the terms of any deal must address the specific interests of the board, provide appropriate remuneration to management, and ensure staff positions will not be eliminated.

Providing board seats to members of the smaller credit union is not always appropriate. However, several of the credit unions we spoke with have developed creative solutions to allow the smaller board to participate after the merger. Advisory boards, board member at large positions, and allocating seats to certain working committees are several of the ways the members of the board can continue to represent the interests of the members.

With respect to management, most of the credit unions we spoke with developed compensation plans based on the specific situation and skills of each manager. Executives and managers who were approaching retirement or whose service was no longer needed were offered generous retirement packages. Retention bonus packages are often offered to those managers one wishes to retain.

5. Trust & Respect

No merger discussion will succeed without trust and respect. Each party must feel comfortable with the other as a partner and believe that the negotiated terms are made in good faith.

Merger discussions can be complicated affairs and no two negotiations are alike. However, if one can deliver the right message to the right people at the right time and back it up with a fair, believable offer, chances are the merger may succeed.




March 20, 2006


  • Very interesting and good reading.
  • Our Credit Union has gone from 9600 members in 2001 to 8100 today because of our corporate sponsor downsizing. Several larger Credit Unions in our area have approached us about merging. It seems like a good alternative for members and staff, but a few managers and board members do not like the idea of giving up control. We have applied for a Federal Community charter, but are on hold because the NCUA has asked for more information to prove our community. We are $42 million with 18% capital, and only about 3000 members in our county. We need a branch to grow, but are hard pressed to find the right combination of size, location, and potential for growth. Your comments and/or articles are appreciated