How Mortgage Lenders Can Remain Successful During Mergers and Acquisitions

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BLOG VIEW: As competition heats up in the mortgage industry, there has been extensive consolidation in the form of mergers and acquisitions (M&A).

M&As create opportunities for companies to expand their customer base, enter new markets, diversify products and services and increase innovation.

Gateway Mortgage Group recently acquired a banking financial institution and subsequently changed its brand to Gateway First Bank. What follows is some general advice for other lenders considering taking the same path.

Cultural Fit

The most important key to a smooth and easy transition is finding a cultural fit. The success of any M&A in large part often comes down to how well the companies bring their employees together. Because companies with well-aligned cultures experience an easier integration, finding a cultural fit should be the top priority for both companies.

Companies must ask themselves what their objectives are, what their goals are, and what they hope to accomplish with the M&A. If both companies’ motivations don’t coincide, the M&A will likely prove to be difficult.

A company is only as successful as its employees, so it’s important that they work well together, treat each other with respect and share similar values. Very often, leaders cite a misalignment between two companies’ cultures as the primary cause of poor M&A results, according to Forbes. If employees can’t align and connect, there is less chance for success. Focusing on alignment pre-merger helps to facilitate that alignment through the process facilitates the transition post-merger.

With that being said, small cultural differences are not uncommon and can actually help bring the two companies together. This situation creates an opportunity for both groups to learn new approaches and understand how the other was independently successful, and contribute to what becomes a “common culture.”

Partnering-up employees from both companies during an M&A process builds a connection and helps employees better understand the other company. When leading or participating in the M&A process it is important to remind one’s self, “I don’t know everything,” and to be observant to all opportunities for change and improvement. Understand that it is less important for one company to get it’s way than it is to get the best result, and act accordingly.

As long as one treats the other party in the merger the way one would expect to be treated if they were in that position in the process, all will be in accord. 

That said, it is important to have a clearly identified and communicated culture coming out of the M&A transaction – this, coupled with a clear strategic vision, allows for buy-in and engagement of all employees in the resulting entity.

Positive Leadership

Big transitions can be unsettling and often make employees feel uncertain, apprehensive and stressed – these are key impacts of change. This can affect the company as a whole, impacting morale, productivity, engagement and even employee retention. Strong leadership can help combat this by keeping employees motivated and engaged. 

As part of the merger process, leaders should be selected from both companies to ensure a voice in that process. Leaders selected should have strong problem-solving and communication skills. Throughout the M&A, these leaders should work together to set expectations for both participating companies. They will set the tone for the direction and efficiency of the new company and play a key role in establishing culture. Better buy-in results are achieved if all impacted feel they had a voice in the outcome.

Throughout the transition, it’s important for leaders to openly communicate with employees – even if it’s bad news. During M&As, employees tend to think the worst. Leaders should be transparent and keep employees in the loop throughout the entire transition. Employees better accept change, even if in their situation it is not positive, if they are treated with respect throughout the process. Not only does this help reduce stress, it increases trust, which is beneficial to the future of the new company.

Energy is what helps to drive company performance. Negative energy detracts and positive energy allows growth and development, so the more that positive energy can be created, and the less that negative energy exists, the better for the company.

Training and Compliance

As the companies begin to integrate, proper onboarding of new employees and retraining of existing employees is critical to a smooth M&A. While certain processes are often similar across the industry participants, there are some deviations and even previously trained mortgage professionals will require additional or updated training. This training should include new products, services, processes, systems and practices, changes in current operations expected, and the “why” of what is occurring along with the “what.” 

The training plan should outline the expectations of the new company and detail how employees can exceed them. It’s also important to consider different training methods, whether educating employees onsite, online or maybe a combination of the two. For large mortgage companies, investing in a learning management system that offers courses and tracks assignments can be very helpful.

Additionally, regulations for financial institutions are constantly evolving, making it crucial that both companies are in compliance with the state and federal laws governing mortgage lending. The new company should ensure that it provides initial and ongoing compliance training for all employees, especially in areas that experienced substantial change during the M&A.

M&As create the opportunity for companies to grow their business lines, markets and customer base and evolve their product offerings, but there is a high chance of problems if this growth is not understood and managed.

Unfortunately, not all companies achieve the groundbreaking results they had hoped for in transactions undertaken. However, looking for a cultural fit, establishing strong leadership and prioritizing training can help companies come out on top.

Scott Gesell is chief administrative officer and general counsel for Gateway First Bank.

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