When a mortgage originations shop acquires a competitor, a single misstep, like choosing not to retain a well-liked IT manager from the onboarding firm, can turn a smooth integration into a total flop.
Seemingly smaller misalignments, like mismatched compensation structures, approaches to marketing spend and executive personality clashes can add up to make a costly strategic endeavor going sour not long after the paperwork has been signed.
What differentiates these outcomes often comes down to transparency and communication from both parties among themselves and with employees.
"Never say nothing's changing," warned Julia Brown, founder of Telescope, an M&A advisory firm. "You lose your credibility, and people start to feel like they can't trust you when things do."
As the mortgage industry continues to consolidate, numerous examples have surfaced of acquisitions
In the past few years a flurry of these deal have taken place ranging from
Guild Mortgage and CrossCountry Mortgage have been touted as having the know how in effectively integrating new branches and other organizations.
Paul Hindman, industry consultant, pointed out that if "operations, marketing spend or pricing breaks it will negatively impact everything" and that CrossCountry, specifically, prioritizes replicating the same conditions for originators that they had previously.
Those acquiring a competitor must take the time to understand what exactly they're purchasing and the people that make the firm operate, and the company selling must be open with its employees about the pending changes, consultants that advise in M&A transactions said.
But transparency must be carefully timed. Oversharing too early can spook staff, especially originators who may start fielding offers from competitors.
"In a deal I was working on, the CEO of the acquired company felt an irrational need to be honest with his employees," said Brian Hale, founder of Mortgage Advisory Partners. "After that, a bunch of people left: before close, at close, and after close."
Ingredients for a successful M&A transaction
Ironing out an M&A strategy and successfully integrating the company acquired is not simple, said Hale, who has been involved in high profile M&A transactions, including selling parts of
"No transaction ever integrates perfectly smoothly, no matter how well you plan it," said Brett Ludden, managing director at Milliman Strategic Advisory.
The real key to success is focusing on culture, and it's not the "we're having happy hour or pizza on Friday night" type of culture, added Brown, who prior to running her own firm worked as a senior vice president of M&A at Lower."When we talk about mortgage culture it means how do we show appreciation to our operations staff, do we have the same paid holidays?," added Brown. "If I'm a loan officer, do I have to ask permission right now for a pricing concession?"
Mortgage lenders that have succeeded at integrating firms often compromise with acquired employees by giving them tools or compensation packages similar to what they previously had, while highlighting exactly what will be changing.Additionally, having senior management from both organizations be "visible and available as soon as the deal is announced, and literally for the first couple of weeks after the deal has closed" is very important, said Ludden.
"You've got to know that you're going to have some problems with people learning new technology, people getting onboarded to that new technology," Ludden said. "In my experience, people are going to get frustrated with those things, but it's how they are treated at that transitionary time that matters more to them and cements whether they're going to stay."
Where things go off the rails
Some employee turnover is expected when a merger occurs, stakeholders say. But there's a threshold to what's perceived as a "normal" amount and exceeding it may be a signal of deeper problems. A number of factors can push an abnormal amount of acquired employees out, including not being prioritized, said Hindman.
"There's real people involved," he stressed. "Failure is not understanding the people and that's why originators and others leave. Deal makers typically feel the love, not the people."
Brown echoed that idea, highlighting that deal makers sometimes "take for granted the human element."
"A lot of time, the people involved on the deal team are working so hard to get to a yes that works for both the buyer and the seller, that once it's done, they're mentally fried, and they're like, yep, we did it," she said. "We're both mortgage companies. They both sell FHA, VA, USDA, conventional like, how different can it be?"
Noting that originating a mortgage is very complex, Brown noted that "everyone has a different trigger of what's going to upset them when it comes to the way that loans are done."
Different technology, how an underwriter handles a file or how the size of the marketing budget fluctuates could trigger dissatisfaction that leads to an exit. Not having an open ear to concerns of new employees makes the likelihood that they will leave significantly higher.
Other common factors that push new employees out include changed compensation structures and new technology, M&A consultants interviewed said.
"Companies that are not successful in keeping new employees are those that don't do the diligence of understanding the social, economic compensation pricing dynamic that keeps sales people at your company," said Hale.
Taking time to explain the differences between new technology platforms and old are key to reducing friction too, he stated.
"The average originator in the US is north of 50 years old," Hale said. "Changing technology systems is a big problem, so many originators think 'If i have to do that, I might as well talk to five other companies and see if they have a better deal for me.'"
