However, experts predict this will not be the last merger of societies we see in the next few months. Already this year Chelsea, the fifth largest society in the country, has swallowed up the one-branch Catholic Building Society – the first deal since the shock £150bn merger of Nationwide and Portman in 2006.
Until now, building societies have been largely unaffected by the credit crunch thanks to conservative lending and less exposure to the sub-prime and buy-to-let markets. The Derbyshire and Cheshire were actually exceptions rather than the rule, having undertaken gambles with their lending strategies that failed to pay off.
But the sector has not been completely unaffected by the turbulent economic climate and many smaller societies look set to seek financial security in takeovers by larger rivals. Many were able to ride on the crest of the economic wave when market conditions were favourable but have faltered in the recent downturn – a story that is not restricted to the building society sector, having been repeated across the business landscape.
As a result, it is widely predicted that larger societies such as Nationwide and Britannia will play a role in further transactions, and The Yorkshire also looks to be in a strong position. And despite the failure of Nationwide to distribute windfall payments – after all, it was rescuing distressed societies rather than ones that were in a strong financial position – we can expect to see a significant amount of speculative investment by consumers who recall the benefits of previous mutual consolidations.
Look at the national consumer media coverage of the mergers and you will see the focus is on the money side – Nationwide as the knight in shining armour to two damsels in distress.
But it is easy to forget the human cost of these sorts of deals, so often consigned to the pages of local newspapers and mentioned only in passing elsewhere as collateral damage on the dealmaking battleground.
For example, the recent mergers will undoubtedly cause a lot of upset among the staff at the two small societies, and Nationwide has already predicted 1,450 job cuts at their headquarters.
Even without the threat of redundancies, it is a fact that people do not like change, particularly in the workplace environment. In the midst of a merger or acquisition, the workforce faces significant upheaval and it is a difficult task to keep them onside. The mergers we are predicted to see in the near future are likely to leave societies with new leaders or management teams. This can have an enormous impact on employees.
While senior managers may, in principle, know what decisions to take, implementing them and dealing with the aftermath can often be more problematic than expected.
For example, a manager with a personal interest in a building society may find it difficult to make tough choices such as making members of staff redundant. Also, if choices are unpopular, a permanent member of staff may suffer from diminished respect and a damaged reputation.
Managing the redundancy process which seems imminent at Nationwide and is likely to be a feature of most future deals, is a difficult and emotional task.
Consulting an employment law professional should be top of the management list in such circumstances. Negotiating the legal minefield can be onerously complicated without expert help, particularly given the increasingly complex area of discrimination.
It may also be an option to bring in an impartial interim consultant to help reduce negative feeling towards management, particularly in the absence of a human resources department.
If the task falls to the current management, it is vital that communication with staff is honest, open and sensitive throughout. Employees must trust that those who lose their jobs are selected based on fair and objective reasoning and are treated well as they leave, whether in terms of redundancy packages or by helping them secure new positions.
The two most important elements of any change management programme are the buy-in of staff and the plans that are put in place beforehand – those who try to wing it will be lucky to emerge from the process unscathed.
Nationwide’s strategy should already be coming into play, with key members of staff identified for retention and redundancy packages in place for others. Everything should have been done to allow the management teams to remain focused on results, minimise disruption and make the transitional periods as quick and painless as possible.
As the pace of deal-making looks set to increase in the building societies sector, every potential acquirer should have an integration strategy in place. Due diligence should not be just a feature of the financial side of things – people are what make businesses work, and it is crucial to avoid the risk of losing them when much can be done to prevent this happening.