Today, M&A deals in the financial sector have rebounded from early-pandemic levels and are on track for another amplified year in 2022. A particular area of M&A growth from 2021 came from bank mergers, which grew in the US by 25% from the year prior – a significant increase compared to global figures.
Mergers bring a world of opportunity for both parties–but that’s only if they work. 83% of M&A deals fail to reach their goals, and up to 70% fail altogether.
Within banking M&A deals, failure is often attributed to high-level issues like an excessive purchase price or inability to identify joint goals. However, the issue is usually more rudimental – an inability to integrate the day-to-day operations between each bank. Technology integration is a prime example of how operational integration makes or breaks a successful merger.
In fact, IT accounts for 1/4 of all M&A integration efforts. It’s one of the major contributors to a merger’s operational success, but is often not addressed until after the merger. With M&As booming this year, CTOs who are involved in the M&A lifecycle must reprioritize when and how to implement these tech integrations.
During an M&A deal, banks have a rare opportunity to conduct a full analysis on the respective tech stacks and identify areas where efficiencies can improve. However, if not executed efficiently, programs designed to integrate newly combined institutions can lead to extensive replatforming initiatives that are delayed and over budget. During an acquisition, tech teams must quickly reconcile inconsistent tech structures for the merging entities, and if done inadequately, can create tech debt, software inconsistencies, legacy code maintenance, and even employee dissatisfaction. Add to this the fact that tech due diligence itself is time-consuming, especially as tech teams work remotely to reconcile conflicts, and you create the perfect environment for employee burnout.
Potential Integration Pathways
Traditionally, there are three different paths for digital integration:
- Each company maintains its existing software,
- The better technology of the two is chosen, or
- Completely new applications are developed.
None of these paths are ideal. With 1, you commit to a future of incompatible systems – a disorganized tech stack that cannot be easily integrated. And 2 & 3 require expensive and complex coding efforts, either in-house or through a vendor.
But now there is another option to consider: no-code.
No-code is a modern way to build, deploy and maintain software applications without writing code. Because no-code doesn’t generate code, there is less likelihood of tech debt, allowing tech teams to focus their efforts on more valuable work streams or on creating more sophisticated software applications.
No-code enables “codeless architecture” — a faster, easier, and more flexible way to achieve organizational integration. In the same way that serverless architecture created a layer on top of the hardware so you didn’t have to think about the server anymore, codeless architecture creates a no-code layer that abstracts the code, allowing enterprises to build and run applications without worrying about the code.
Regardless of the integration approach, no-code can be used to reduce risk and provide greater flexibility in achieving the targeted post merger state:
Model 1: Each company maintains existing software
In this model, CTOs are often faced with systems that are unable to interact – pertinent data lives in two disparate systems; reconciliation is a major headache; employees are logging in and out of multiple tools.
No-code software can create a user interface layer on top of disparate tools to enable cross-platform efficiency. Imagine an employee logging into one platform and having SSO (single sign-on) access to data and functions from other systems. This one-stop shop will enable the synergies expected from the merger.
Model 2: Pick the better technology between the two
If you choose to adopt the tech from Company A, Company B will lose a lot of the functionality that is essential for day-to-day operations, and will have to spend time merging systems, learning new applications, etc. This pressure to migrate often results in manual band-aid solutions, which erode standardization and pose long-term risks.
No-code provides a quick way to build missing features and integrate them into the chosen technology system. Did Company B lose the ability to calculate a specific metric within a system that is useful for decision-making? Does it need to send data to a third party? No-code can quickly and efficiently fill in these gaps to keep both groups running smoothly.
Model 3: Develop completely new platforms
If it’s decided that a new system must replace the tech on both sides, the biggest issue is time. Coding a new platform will be laborious and expensive, and poses a number of logistical challenges: What will your companies leverage while you build the new system? How long will it take to implement? What if requirements change during the process and the new system doesn’t meet them?
No-code enables a faster build process, providing flexibility to create what you want, without waiting months or years to build it with code. No-code allows layered phases of construction by first creating a user interface layer with existing systems, then works through each piece of underlying functionality. This then enables you to update legacy tech, without having to turn off capabilities that are essential for day-to-day operations.
Overall, bank mergers will continue in momentum as we move into 2022. With no-code, tech integration will occur faster, with increased flexibility, realization of value, and customer and employee satisfaction.
The CTO that recognizes no-code is an option as they consider how to reconcile merging their tech stacks is more likely to drive a successful merger– no matter which path they see as the best fit to do so.