The drivers of M&A are changing but the fundamentals of success are clear

The landscape of global banking is shifting rapidly under the pressures of competition, digitalisation, regulation and – most recently – the end of an era of cheap money, heralding a period of slower growth.

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As the landscape shifts we’re seeing new models emerge, non-traditional competitors like fintechs and bigtechs enter the fray and traditional banks responding with their own transformations via – as is often the case when seismic change is happening – mergers and acquisitions.

“Engaging with professionals who have lived this experience – sometimes many times over – has accelerated our existing knowledge and capabilities and provided some solid lessons.”

We will see more. Mergers typically proffer expanded customer bases and new markets but are increasingly also driven by the need for greater scale in this changing world. But much M&A fails. It fails to be completed, it fails to deliver the promised synergies, it fails to grow the expanded customer base.

When I step back and consider the major forces behind this M&A wave a few stand out:

  • The cost of compliance – the on-going and increasing investment required by banks to be compliant with regulations requires scale to reduce the cost per product or customer. And given the latest banking crisis, this will increase.
  • Cybercrime – an increasing threat to both banks and customers. Banks can’t skimp on the money and resources needed to combat this growing threat. Scale again is important but also expect to see M&A or investment in tools or companies that specialise in this area.
  • Digital transformation – there is no escaping the need to accelerate this shift nor how greater scale reduces the unit costs and risk.
  • Customer acquisition – this is not just about scale but about the cost of attracting new customers in extremely competitive market places.

ANZ is part of this new banking landscape and we have announced an agreement to acquire Suncorp Bank from Suncorp Group Limited. Critically, we have a long and successful history of acquiring companies and bringing them into the ‘blue’.

In 1970, the largest merger in Australian banking history took place when ANZ Ltd merged with the English Scottish and Australian Bank Limited to form the modern ANZ. And it’s been 20 years since ANZ bought the National Bank of New Zealand from Lloyds Bank, the largest merger in New Zealand corporate history.

While the Suncorp acquisition is still subject to conditions, not since the St George and Westpac merger in 2008 has there been a banking acquisition of this magnitude in Australia.

ANZ’s authorisation application and details of the ACCC’s public consultation process are available on the ACCC website. In addition to ACCC authorisation, the acquisition is subject to additional conditions including approval from the Federal Treasurer and Queensland legislative amendments.

While the acquisition remains subject to these conditions, ANZ has begun to prepare for the integration of Suncorp Bank into ANZ, including work on a joint transition plan agreed with Suncorp Bank and within competition guardrails. Completion of the acquisition remains expected to occur in the second half of calendar year 2023.

We have been focused on what is essential for the Suncorp acquisition to work – outside of the regulatory approvals – and what can go wrong.

In the interest of an easier sleep – and getting a deeper understanding of what makes acquisitions of this magnitude successful – we spoke to 15 banks across Europe, the UK and the Middle East as well as Australian companies from other industries that had recently completed M&A or digital builds in unique contexts.

These conversations were highly informative - and occasionally frightening. Most importantly, engaging with professionals who have lived this experience – sometimes many times over – has accelerated our existing knowledge and capabilities and provided some solid lessons.

Those who are successful in M&A are relentless. It can be thought of as a negative attribute but I have learnt it is not a bad word. We can be relentless in what we are trying to achieve and still hold to our values. It’s a word we need to get used to if we want this deal to succeed.

The lessons of successful M&A were consistent, across every organisation we visited. In particular, three key components of success stood out:

Deal logic - The agreement to acquire Suncorp Bank represents a growth strategy for ANZ and we believe Suncorp is a terrific franchise and a natural fit. In line with the bank we are building, ANZ is looking to secure this deal to accelerate the growth of our retail and commercial businesses while also improving the geographic balance of our business in Australia.  

The companies that were successful were relentless in sticking to this “deal logic”. What was most fascinating about those most successful was they had done it loads of times.

One particularly impressive company was able to plan the completion and migration of the transaction on one page. “How did you get so good?” I asked. Their response was frank: “Well, the first one wasn't great. Actually it was terrible. And the second one wasn’t so good either. It wasn’t really until the eighth or ninth time we really got our act together.”

What was clear was they were relentless at sticking to why they were doing the deal. ANZ must stick to the deal logic – to acquire 1.2 million customers. We believe Suncorp customers will be better served by our products and services.

Pace – Successful acquirers were relentless on the pace of execution and not taking their foot off the accelerator. Victory doesn’t happen on the day the transaction is completed. In the marathon that follows an acquisition, we must be relentless in hitting all milestones.

Culture - The third component of success underpins the previous two: the approach to culture.

Being very clear and aligning values - the way we do things, the way we make decisions - is hugely important. If the alignment is not there, it becomes difficult to stick to the deal logic and execute at pace. We believe bringing Suncorp Bank into ANZ will be an enriching experience for people on both sides. It will make us better as a business, as an employer and a community partner.

We have a long history of bringing companies into ANZ, being successful at integrating those acquisitions and fostering the cultural alignment.

Louise Higgins is Managing Director of Suncorp Integration at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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