Bank CEOs: Selling the Bank? Here are your 3 unique management challenges.
So, you are taking the path of selling your bank.
Today I am going to lay out for you 3 unique management challenges you will be facing at various points throughout the process of selling.
Exposing yourself to these challenges prior to them happening will make for a much better experience for you, your employees, the customers, and your shareholders.
Without this knowledge you will be left reacting to the challenges, leaving you feeling less than confident when your confident leadership is needed.
Lacking confident leadership, your employees and your customers may get the feeling that something is off and start looking to leave, resulting in your shareholders suffering reduced value for their shares.
The 3 unique challenges of managing the bank you are about to hear happen along these points in the timeline:
- Prior to the Letter of Intent (LOI)
- From the LOI to the signing of the Definitive Agreement
- From the Definitive Agreement signing announcement through closing
The entire process of selling the bank rides on your shoulders. Understand that, embrace it, and remember that you will be adding your name to a list of those who can say they have taken on this role.
Working on this is a full-time job, in addition to the full-time job you already have in running the bank, and nobody other than the board knows about it.
It's a big lift, but you're up for it.
Here are the 3 unique challenges you will have:
1. Prior to the Letter of Intent (LOI)
As the process begins, you will be experiencing the adrenaline of what the future holds. Meeting with the investment bankers and the board, talking about the possibilities a future combination can make, the value can potentially be realized from your team's efforts, and just the unknown.
As the conversations take place with potential suitors and as your primary information is reviewed, it begins to seem a bit more real. You're exposing information about your bank, your people, your financials, and your customers that it all undoubtedly will begin to make you feel uncomfortable.
There is a great deal at stake.
Your employees, your customers, and your shareholders, in addition to you, have a great deal riding on this. It will only get heavier from here.
You must set all of that aside and manage the bank.
The sale may never happen.
The passage of time only adds risk.
- What if the market collapses?
- We just came through a pandemic - what if something like that were to happen again?
- What if the offers are way below the anticipated value range?
- What if there was a major cybersecurity event?
Naturally you may begin to think about not needing to worry about replacing the HVAC system, or promotions, or raises, or any other number of issues that you believe won't be yours to deal with - it will be the buyer's issues to handle.
But you must resist those thoughts at all costs and run the bank as if the potential sale of the bank is not taking place.
What if you delayed the decisions on issues like the ones presented above and the sale never took place? Nobody would have any knowledge of why you decided to delay those decisions. You wouldn't be able to defend your actions.
What if word got out that you were considering a sale?
Employees may begin looking to leave and customers as well. All damaging value and your shareholders and your board may think they need to make a change in leadership.
2. From the LOI to the signing of the Definitive Agreement
You’ve signed a non-binding LOI and it looks like you have a deal.
At this point the deal is just a framework of terms and conditions along with a price that both parties have agreed to – in principle.
At this point in the process, the level of due diligence is ramped up to the highest level.
Until the due diligence process is final and the details of all the terms and conditions are thoroughly reviewed and agreed to, it is critical that word still not get out about the deal.
You still need to manage the bank as if the deal may not happen, because there is still a possibility it may not.
Time is not your friend.
But now, you have a lens in which some of your decision-making will have to pass through, again without anybody’s knowledge internally that there is a deal in the works.
What does a lens in which some decision-making must pass through?
Like loan approvals. Your deal isn’t done. You are not deferring to the buyer’s management, but you do want to know that the likely buyer is aware of credit that is being extended beyond the limits you are currently in the process of negotiating. Those limits are not final, so it is important that information such as this is shared with the buyer.
That can mean that your communication of approval, internally, and externally with the customer now has a few new wrinkles you need to work through, all the while not raising suspicions.
The same can be said for contract renewals, lease renewals, anything that could be material by the definitions of the definitive agreement that you are working on.
Knowledge of this ahead of time allows for you to plan for it.
You now have knowledge in advance – you’ve got this.
3. From the Definitive Agreement signing announcement through closing
You’ve made it through the process of getting the Definitive Agreement signed, but still have about 90 days prior to closing while you seek shareholder approval and regulatory approval.
It is now time to make the deal announcement.
You will notice, as soon as you head back to your office following the announcement, that a subtle shift has already taken place.
It is normal and to be expected, but it is almost immediate.
The shift is that you are no longer viewed by the employees and the customers as the “final word.”
Although the closing hasn’t taken place yet, in a de facto way, it has.
You will need to navigate this with the same spirit as your announcement comments. Respectful, positive, collaborative, and forward-looking, but with distance as well.
The distance is preventative so that a retreat from the position is still workable until the deal is closed.
The deal has not closed, and time is not your friend.
Keep your eye on the ball and support the team until the deal is closed.
Leaders lead.
There are zero hacks or tricks in this newsletter. Just proven tactics that help you choose the right path for your bank.
Your path will:
- Inform your strategic plan
- Guide your annual business plan and budget
- Clarify priorities
- Define your message so it can be communicated with confidence
This is how savvy bankers navigate.
They build smart and valuable banks and choose the best time to sell – serving the needs of the shareholders and the board.
I hope you found this short lesson helpful.
I’ll see you next week.
