Experts forecast a big year ahead for banking M&A as a confluence of economic and political shifts unleash 18 to 24 months of pent-up demand. But as more bank leaders explore M&A opportunities, it’s critical to establish best practices now that ensure future mergers or acquisitions live up to their expected value.
Looking closely at successful bank M&A, executives can glean a few key strategies that center on integrating and activating data — prioritizing customer retention through the merger or acquisition and maximizing customer growth opportunities.
2025 will be a banner year for bank M&A
Following pandemic-inflated record economic highs, banking M&A activity dipped drastically due to a range of factors in early 2023. A series of bank failures, economic uncertainty and budget cuts caused unrest across the nation as banks awaited a more favorable regulatory environment and pressure mounted to scale and drive efficiency. Stubborn inflation and high interest rates kept valuations low and caution high, and the proposed Basel III Endgame that would raise capital reserve standards added to the anxious climate.
But things look much sunnier for bank M&A in 2025. In a recent survey, one in three senior bank executives and board members say their banks are actively looking to acquire in the coming years. More than half say they’re open to acquisitions to grow their banks.
So, what’s fueling the sudden turnaround? There are three converging factors:
- Favorable economic conditions: The Federal Reserve has already made significant rate cuts. With inflation settling closer to targets, the Fed signaled intent to continue lowering rates through 2025. Falling rates and easing inflation have improved bank valuations, as reflected in a 30% jump in the KBW Nasdaq Regional Banking Index. These economic shifts also enhanced acquiring banks’ abilities to fund acquisitions. In other words, higher valuations make M&A more attractive to sellers, while the lower cost of capital makes M&A more attractive to buyers.
- Strategic motivations for M&A: Following the challenges faced by regional banks in 2023, M&A are increasingly seen as a risk-mitigation strategy. For smaller community banks, M&A remain a primary growth path, as well as a vital strategy for improving technological capabilities to compete with larger banks, which often incur lower relative costs when it comes to implementing and administering tech tools.
- New administration and political policies: Policies expected from the incoming presidential administration and Congress are widely expected to spur dealmaking. Analysts predict the new administration will likely appoint regulators amenable to larger deals, as the incumbent administration has signaled that it wants to reduce, not expand, regulatory requirements in the financial industry.
3 keys to bank M&A success
Even in the most favorable economic and regulatory climate, many bank M&A struggle to reach their expected value. The post-deal period is a make-or-break time that enables — or limits — the success of the combined financial entity.
Bank leaders considering M&A from either the buying or selling side can get ahead by examining three of the biggest post-deal pitfalls — and reframing them into essential strategies that will drive post-deal success:
1. Integrate data: Create a single source of customer intelligence
Modern bank leaders know they need to become increasingly data-driven — from back-end operations to communicating and selling to customers. But while banks are rich in customer data, many still haven’t effectively aggregated and “cleaned” that data into a streamlined, usable repository. Data silos are rampant. For example, sales data disconnected from marketing data creates inefficiencies and missed opportunities for both teams and poorer experiences for customers who expect their bank to recognize them instantly across channels and anticipate their needs.
M&A amplifies these problems. The best-case scenario is harmonizing two large, disparate data sets. But the more common reality is bringing together two sets of data silos without a plan of action to bridge that gap.
Banks considering M&A should proactively invest in implementing a platform capable of centralizing and harmonizing all customer data in a single source. Endless software solutions exist to help with this task, but the problem with these platforms is that they are often not built for the financial industry. Starting with a purpose-built banking customer intelligence platform is a significant shortcut to successful data integration, assimilating bank customer data into a ready-to-use format to better understand and connect with customers.
2. Proactively engage: Prioritize customer retention from day one
For many banks, M&A is the quickest and most cost-effective path to growth by essentially “buying” a group of new customers. Where banks commonly fall short is promoting the value proposition of the merged organizations when engaging and onboarding the acquired bank’s customers.
At best, neglecting net-new customers limits the potential of the acquisition — failing to deepen share-of-wallet. But it doesn’t take much for customers to jump ship and seek better rates or services. Too often, this poor new customer engagement can ruin promising M&A — leaving the acquiring bank with little more than the shell of the bank brand they acquired.
To be successful, acquiring banks must treat M&A like all customer acquisition efforts. This means building a strategic onboarding and engagement program focused on building relationships with newly acquired customers from day one. Having a foundation of integrated, centralized and normalized customer intelligence provides vital fuel for further effective customer engagement and retention efforts.
3. Empower your team: Give them tech tools to act at speed and scale
Combining two work cultures comes with challenges no matter what, but giving teams modern tech tools can be a powerful way to get everyone on the same page.
That’s because one of the biggest issues most banks have — outside M&A — is getting their teams the information they need to make faster, smarter decisions.
Leading platforms such as Total Expert provide a foundation of integrated, centralized customer intelligence through analytics and purpose-built workflows to surface the most accurate signals of customer intent. With these tools, sales and marketing teams can identify customers who are likely to be in-market for a new product or service, for example.
Perhaps more importantly, leading customer intelligence platforms provide teams with pre-built customer engagement journeys that combine automation with human interaction to empower an institution’s entire workforce. That allows them to act on customer intelligence insights at speed and scale. These capabilities are not only vital to customer retention, but also important for growth campaigns to expand share of wallet.
Setting the stage for M&A success
As banks gear up for a surge in M&A activity, it’s crucial to remember that a successful merger goes beyond financial due diligence. By prioritizing seamless data integration, proactive customer retention and empowering teams with the right technology, banks can navigate the complexities of M&A and emerge stronger, more competitive and ready to capitalize on the opportunities of a dynamic market. In the race to acquire, it’s the banks that prioritize customer relationships that will truly win.
About the author
James White is General Manager of Banking at Total Expert, the purpose-built customer engagement platform trusted by more than 200 financial services organizations. With more than 20 years of experience, James is an industry expert in designing and deploying innovative and cost-effective applications for the financial services sector.