Bendigo's IT integration capability tested in Suncorp Bank buyout case

IT integration complexity and cost were among key battlegrounds in determining whether ANZ or Bendigo and Adelaide Bank represented a better potential suitor for Suncorp Bank.

ANZ made the only actual play for Suncorp Bank, a $4.9 billion bid in mid-2022 that passed competition muster last month.

But two alternative options to an ANZ buyout were also considered by regulators - a hypothetical merger with Bendigo and Adelaide Bank, or Suncorp Bank continuing as a standalone entity.

A detailed appeal ruling published by the Australian Competition Tribunal this week shows that Bendigo and Adelaide Bank’s suitability faced a stiff challenge on IT grounds, covering both its track record of integrating the technology stacks of acquired entities, and the modest size of its IT spend.

The criticism levelled at Bendigo and Adelaide Bank, to an extent, has to be read in the context of the dynamic at play between the parties.

Favouring an ANZ buyout, Suncorp Bank needed to find fault with Bendigo, homing in on perceived IT capability and budget weaknesses compared to the larger ANZ.

Bendigo, meanwhile, had to establish its credentials as a credible alternative to ANZ. That meant arguing that it punched above its weight on many things, IT included.

IT integration

One point of contention in the consideration of Bendigo and Adelaide Bank as an alternative suitor was whether it could integrate Suncorp Bank from a technology perspective in a timely manner.

The implication was that a slow integration could delay “cost synergies”, which would be realised sooner if Suncorp Bank’s buyer was ANZ.

“Any synergies … would be delayed for at least four to six years,” Suncorp and ANZ alleged.

At issue was Bendigo’s relative size, technology budget and spend, and track record.

Bendigo’s chief transformation officer Ryan Brosnahan downplayed the criticisms, arguing “that Bendigo has a team that is ‘match fit’ to undertake integration of Suncorp Bank because it has been undertaking similar integrations for past acquisitions over the last two years.”

Bendigo touted its ongoing core consolidation program as evidence that it could handle another complex bank re-platforming and complete the work in a timely fashion.

“Mr Brosnahan expressed the view that Bendigo was “pushing through” one integration “every six months”,” the ruling notes.

Suncorp, through its group CIO Adam Bennett, challenged this by arguing “that Bendigo’s examples of previous acquisitions that were effectively integrated cannot be relied on to establish that Bendigo has the capacity to successfully integrate Suncorp Bank.”

“Relevantly, Adam Bennett states that Suncorp Bank would need to be “de-integrate[d] and re-host[ed]” to be integrated into Bendigo, which is the most complex form of integration, and none of the successful integration examples provided by Bendigo required this approach,” the ruling states.

“In this regard, the Tribunal accepts that the integration of Suncorp Bank would be more complex and on a materially different scale to past successful integrations undertaken by Bendigo.”

The Tribunal did not see timely integration as an impossibility, noting that Bendigo “would be strongly motivated to overcome … difficulties” should they be encountered.

Importantly, the Tribunal appears to have heard compelling evidence of the Bendigo tech and transformation teams’ ability to deal with adversity, potentially relating to Bendigo’s current core consolidation, although the exact details are redacted from the published ruling.

The Tribunal also offered an overall favourable assessment of Bendigo’s IT integration capabilities, saying the evidence pointed to Bendigo having “successfully integrated technology systems following recent acquisitions of other entities”, and “consolidated its banking platforms and transitioning to cloud-based applications … in a relatively efficient manner.”

That broadly supports the narrative of Bendigo at its recent half-year results, where it said being smart and more cost-conscious in its approach to technology and digital works made it able to punch above its weight compared to more resource-rich rivals.

All about achieving scale

The relationship between scale and ability to invest in IT and digital systems to compete - particularly in the home loan market - was also analysed.

Both Bendigo and ANZ asserted that being a bit bigger would benefit them.

“Bendigo submits that the scale of a merged Bendigo/Suncorp Bank would enable Bendigo to increase investment in innovation and technology and accelerate the delivery of Bendigo’s digital capabilities by spreading its fixed costs across a larger balance sheet,” the ruling noted.

“Even a bank with the scale of ANZ … is pursuing the proposed acquisition in order for it to be able to obtain sufficient scale to fund its digital transformation program, and address cyber security, fraud and scam management in order to enable it to “stay ahead in competition”, and compete effectively with the larger major banks, (CBA and Westpac).”

On this issue, the Tribunal did not see a Bendigo-Suncorp merger as creating a large enough entity, with a big enough technology budget, to make a dent in the market share of larger banks.

“The increase in scale and investment envelope achieved by the merged entity would be unlikely to be sufficient to enable it to fund the necessary technology to enable it to match the technology now deployed and in the process of being developed by the major banks and Macquarie,” the Tribunal ruled.

Having received competition approval, ANZ's acquisition of Suncorp Bank still needs "legislative amendments by the Queensland parliament and approval by the federal Treasurer", ANZ said last month.