Understanding Acquiring Banks

Understanding Acquiring Banks: Role in Mergers & Acquisitions

Acquiring Bank: Insight into the Role and Significance in Merger and Acquisition Activities.

An acquiring bank has got distinctive significance in the M&A activities in the banking sector. It is the acquiring company that takes over another bank by acquiring its assets and liabilities, customers, and all operational as well as systematic matters of the bank that have been taken over. This is however, done for growth, expansion of the market and competitive advantage.

This begs our attention to the role and functions of an acquiring bank in a more detailed way now:

1. Merger and Acquisition (M&A) Process:

In the process of merger or acquisition, the acquiring bank is the one who opens and finalizes the deal/s. This would generally include the acquisition of the assets and liabilities of the target bank. An acquiring bank can do that in this regard in order to grow, strengthen its core business or to increase its market share.

2. Asset Purchase and Assumption:

As part of the M&A deal, the assets owned by the purchased bank are bought by the acquiring bank. Such assets typically are cash, loans, securities, real estate, along with other tangible and intangible assets. In addition, the acquiring bank also takes over liabilities such as customer deposits, outstanding loans, and other intended cases.

3. Functioning of acquired operations

After the merger order is done, the bank which executed the takeover commences working to assimilate the acquired bank’s functions. Such a process has such activities as integration of operational systems, merger of branch structures, and integration of backroom services. The objective is to achieve cost savings and combination of operational functions without affecting the normal day to day operations of the bank.

4. Transition of customers’

Through the acquisition of a bank, its shareholders and customers are often switched to the grain acquiring bank after the merger. In the most cases, such changes should be communicated by the acquiring bank: what changes they will face, how this process will develop and some worries they have. This is also the reason why when there is a transfer of customers from one bank to another the acquiring bank will more likely offer some incentives or promotional offers to the customers.

5. Provisional approval

In the few countries, including the US, mergers and acquisition in the banking sector are highly regulated activities. When deciding to merge, banks need to obtain permission from important regulators, such as the Federal Reserve, OCC or FDIC. This makes sure that the deal meets the necessary laws and recommendations that must be addressed before any sort of merger can take place.

6. Financial assessment:

The buying bank carries out a thorough financial assessment of the transaction including the purchase price, expected synergies, integration costs, and revenue generation by the merger in the future. A proper due diligence process supports determination of the possible risks involved in the deal and the possible gains that can accrue from the deal that is deemed to benefit the shareholders of the bank and its overall financial stability.

7. Purpose/Reason:

The reason for an acquisition may be different objectives but majorly be increasing market penetration, broadening sources of income, development of new areas, enjoying bigger sizes, and fortifying their competitive edge. The acquisition strategy most of the time is consistent with the growth and profit objectives of the bank in the long run.

8. Effect on Stakeholders – Shareholders, Customers, Employees:

Such mergers or acquisitions can have profound effects on the shareholders, clients and employees of both the acquiring and the target banks. For shareholders, it usually entails improved shareholder value by virtue of greater market penetration and higher profits. For clients, it can bring more services, new offerings, or greater accessibility. Employees nonetheless might experience restructuring and integration difficulties.

Acquiring banks are significant institutions in the process of the consolidation of the banking sector. They procure other key banking institutions that would allow them to strengthen their market position, increase the number of their customers, and boost efficiency. In steps towards accomplishing plans, the acquiring bank fundamentally enhances the long term interests of its stakeholders by substituting any other bank’s assets and liabilities for its own.