September 30, 2005
A Thought For The Weekend: Why Bank Acquisitions Fail To Meet Growth Expectations
New FMCG analysis shows that a key reason many bank acquisitions fall short of expectations is that buyers do not uncover organic revenue growth problems at the seller. Consequently, while agreeing to a deal price, the acquirer’s management does not fully appreciate that they are implicitly signing up for a heroic turnaround of an underperforming institution.
More after the jump:
They make the great but frequently-overlooked point that banks for sale are much more likely to be having organic growth problems already, and may be dressing the balance sheet. If as a buyer you are also having trouble growing organically (and why else pay a big premium for another institution?), you have a recipe for an underperforming combination.
If, as a potential buyer, your retail organic revenue growth has been consistently strong and has been underpinned by distinctive customer value, you have higher odds of success in the M&A game. However, even for such banks, it is important to think twice if your target is in a region where it faces particularly strong competition.
Conversely, if your performance and that of the target are sub par, and management has a “must-win-this-deal” mentality, then a plan for how the target will be managed so as to be competitive in the market becomes paramount.
Posted by The Banker at September 30, 2005 06:31 PM
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