How to Find the Perfect Merger Match

In 2007, 246 credit unions were merged. Why are these credit unions merging and how do you best analyze a merger partner to ensure the best possible outcome?


The perception is that credit union consolidation has accelerated in recent years. In fact, merger activity slowed in 2007 with 246 credit unions merging compared to 323 in 2006. The average size of a merged credit union in 2007 was $14.9 million. The majority of these mergers involved small credit unions, with almost three-fourths of all merged credit unions under $10 million in assets.

Why do credit unions seek mergers?

Many of the small mergers are done out of regulatory necessity or survival. Larger mergers are more strategic in nature. The reason most often cited for a merger is enhancement of member value for both the continuing and merging credit union. This comes through increased product and service offerings and better rates. Another reason many credit unions merge is for growth. The growth driver in many cases is not necessarily a smaller credit union's assets, but rather the growth potential that comes from the merged credit union's potential field of membership. A third motivation to merge is to diversify the credit union's field of membership. If the institution has one primary SEG, for example, they may wish to merger with another credit union sponsored by another SEG to hedge against any economic shocks to its core membership.

While mergers often accomplish the above goals, issues arise that can lead to mergers not meeting the expected outcomes. These “failures” include the following:

  • Added capabilities and market reach do not enhance member value or institutional growth
  • Culture clash and other operational integration issues
  • Economies of scale and efficiencies not realized by the continuing credit union

Many of these reasons often apply to “mergers of equals,” or larger credit unions of comparable size, but some pains can be felt when merging with smaller credit unions. CoastHills FCU ($610 million in Lompoc , CA ) experienced some issues they were not expecting when merging with a $50 million institution. “Despite all of our great planning and preparation, we ran into several challenges with core system transitions and procedure issues. We anticipated losing about 10% of the merging credit union's members and we did over the next year, as some members were hesitant to adopt the new systems. Overall, I would call our merger experience a success as it allowed us to expand into a market with a strong existing presence,” CEO/President Jeff York explained.

In order for a merger to be successful and meet its intended goals, merger partners must be analyzed using three criteria to assure all possible areas are addressed.

  1. Member impact: Will members benefit from the merger?
  2. Institutional impact: How will our financial position, growth prospects, productivity and efficiency be affected?
  3. Employee and volunteer impact: What board issues should be addressed? How many seats for the merging credit union? What will happen with their employees?

Addressing these issues will allow a credit union to find a merger partner that is the best possible fit. To hear how credit unions that went through significantly sized mergers used these steps to conduct successful mergers, join us for The Perfect Match - Three Keys to Analyzing Potential Merger Partners , a webinar brought to you by Callahan & Associates.