Those who invest in the stock market have a clear idea of when is the right time to buy and sell. It’s always one or the other. That’s not so true when it comes to selling companies. When markets are hot, like the real estate and finance industry has been for at least the last 12 months, it’s the right time to sell and the right time to buy.
According to Deal Flow, as cited in Forbes, the beginning of the pandemic saw M&A activity drop, as one would expect. But sooner than anyone expected it came back and transactions stacked up through 2020. Now, half way into 2021, acquisition activity of every kind is soaring.
We’ve seen some very high profile deals this year, including the recent acquisition of Flagstar Bank by New York Community Bank in a $2.6 billion deal. According to published reports, the Flagstar Bank brand name would survive, and the newly combined entity would have 394 traditional bank branches in nine states. In addition, the company will have 87 mortgage lending offices in 28 states.
The bank expects the deal to generate $125 million in savings from future cost cuts, with 70% of that coming from mortgage operations. I have no reason to believe they won’t hit this target, but it’s an aggressive goal.
According to an Accenture Strategy analysis of 800 global M&A transactions, only 27% resulted in both operating margin improvement and revenue growth. The reason why: too few leaders created a long-term blueprint for the intended synergies prior to closing the deal.
What’s blocking the synergies? The same thing that will likely block the cost savings that banks would like to see post deal. I refer to this as the post M&A technology challenge.
Instead of one unified company in lock-step toward the future, most M&A transactions result in two teams operating under a cloud of uncertainty and often with different technology platforms.
One of the most serious questions that must be answered post deal is what technology will the combined company embrace for loan origination. That’s not an easy question, but one I will explore in my next post.
By Joe Camerieri, EVP, Client Account Management at Mortgage Cadence
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