Mergers and Acquisitions: Create new capabilities and revenue synergies

Successful bank deals require new technologies and meticulous execution.

The banking industry faces several challenges due to recent economic, geopolitical and regulatory developments. KPMG has identified the top 10 issues facing banks in 2022 and beyond, and in this article we examine the topic of M&A.

Create new capabilities

While scale and efficiency needs are driving bank M&A, especially as institutions focus on acquiring new technology capabilities and entering new markets, we expect the pace to be somewhat constrained … at least for another few months.

Though there is general agreement that alliances with fintechs and mergers of equals may benefit most customers, the possibility of stricter regulations from the current administration may slow down the number – although not the value – of deals in the near term. This is due in large part to the sweeping executive order, issued in July, that directed federal regulators to strengthen oversight of bank mergers. 

It is the improvement of technological capabilities and added scale that appear to be the major fuel of growth, as so many traditional institutions remain in a swift race with non-traditional providers of financial services.

Our view is that competition for increasingly tech-savvy customers – who wholly embraced digital behaviors as the pandemic’s impact intensified – is only beginning. The value of collaboration with fintechs has never been greater – and, in our view, will intensify. The rewards accruing from that strategy can be significant, but so are the risks.

The foundation for superior M&A deal making has always dogged due diligence efforts. Fit, culture, and systems integration are key to improving the chances of success. There also are issues associated with understanding the extent of outsourcing processes by a target, and there are heightened accounting issues, such as the purchase accounting for credit deteriorated loans.

More than ever, it seems, success requires judgement about sophisticated diligence and meticulous execution.

Taking Action in 2022 – M&A

Click on each section below for actionable steps you can take now

Build revenue synergies into the deal

Deals are competitive – especially for fintechs.  Banks will have to pay a premium for great technology.  To justify paying a premium to win the deal you will need to build revenue synergies into the deal.  Make sure your business leaders work to quantify these estimates in detail and build the achievement of these synergies into their incentives post deal. Connecting integration planning and execution with diligence findings is paramount to achieving synergy targets without costly delays.

Be prepared

Deals are different this cycle than the last. Flawless execution is required to achieve synergies, so make sure you have detailed plans as well as the best athletes running the plays. In today’s environment, prepare for potentially longer approval processes and ensure teams are prepared to execute integration plans swiftly to avoid costly missteps.

Be proactive on culture

We’re in the middle of the ‘Great Resignation’, so proactively addressing and managing culture and employee engagement is essential.  Get your teams excited and engaged with the change or they will quickly leave.

Shifting to a higher gear
Download the full report to learn about all of the key issues impacting banks in 2022 and beyond

Connect with KPMG

Timothy Johnson

Timothy Johnson

Financial Services Industry Leader, Deal Advisory, KPMG US

+1 312-665-1048
Jack Whitt

Jack Whitt

Principal, Advisory Strategy, KPMG US

+1 703-286-8807