UNITY BANK: REALIZING VALUE FROM AN M&A INTEGRATION
Founded in 1982 in South Africa, Unity Bank was one of the few providers of global shareholder and employee management services and other value added services. Unity held more than 60 million accounts for over 10,000 corporations across twelve countries and five continents, employing 8000 people worldwide and a market capitalization of $2 billion. The M&A integration of Delta with Unity Bank in itself was a great step for Unity Bank.
The four major areas to be considered during the integration were software, infrastructure, organization structure, and people. The team’s task was challenging as it had called for a $60 million saving in two years, nearly half of Delta’s current operational expense. The pressure was intense as merging two emerging entities was a huge task. The management was unequipped with plan and was not aware the first area that they needed to tackle.
We believe that the integration could be managed by gradually consolidating Delta systems into LEAD, pushing back the deadline by 2 years, creating cash and transition incentives to increase employee productivity and decrease resistance, offer clients discounted rate to retain them and implement a flexible/parallel problem solving approach.
Unity Bank will have the largest market share in the US after the acquisition of Delta is finalized. This has presented the management of Unity, the company acquiring Delta, with many obstacles. The shareholder employee management services industry has been increasingly relying on advanced IT to handle both the massive volume of shareholders and the complexity of the transactions needed to be processed. Unity is currently faced with multiple conundrums in how to integrate the two company’s systems into one mechanism that will allow for economies of scale and high efficiency.
The two company’s systems are different on many levels that impact flawless integration. Unity and Delta both operate on different programming language and also have vastly different user-interface utilities. Unity’s system offers more advanced services to its clients but is not set up for the huge volume soon to be created by the acquisition. Delta services are more limited; however their systems were made for high volume levels. Unfortunately, there are numerous difficult problems that must be addressed and solved in order for the acquisition not to become the demise of Unity.
Each problem has many layers of complexity that must be solved in addition the management team needs to grasp which area to tackle first within their time and budget constraints. Done successfully Unity can transform into a world leader in shareholder employee management services. We conclude that each are must properly addressed with a stringent set of priorities in place in order to not become one of the many failed cases of mergers and acquisitions.
PROBLEMS AND ALTERNATIVES:
1. Savings goal hindering integration effectiveness
This is the largest problem for the integration team because most of the other problems can be solved if they were given more time. Due to the due diligence restrictions, the integration team was unable to proceed with the merger for about 8 months, yet the company only gives them three years to cut IT spending by $60 million. Given the complexity of the process and the implication of current decisions on future success, this time issue can lead to rushed decisions and integration failure.
A. Push back the deadline by 2 years
By giving the integration team more time, the target saving will be more realistic and the integration team will have time to learn more about Delta software systems, analyze problems more carefully, and recognize which Delta employees are contributing and which are not. Each of these processes is essential to building a successful company. Disadvantages:
• May not solve more...