Community Bank CEOs: 3 ways to go to market for a focused and successful sale

Generally, there are 3 possible ways to go to market with your bank:

• The “one-buyer” approach
• The “one-bid” approach
• The “strategic” approach

Today, I am going to walk you through each of the approaches.

The approach you choose matters and your board will need to be on the same page as you. The investment bankers (if you choose to work with investment bankers – and I highly recommend it) will need to be on the same page too.

If there is a failure here, it is typically when instructions are not clear, you. Chaos ensues when you, the board, and the investment bankers aren’t on the same page.

Chaos could lead to word getting out. Chaos could cause your bank to lose value, along with potentially losing employees and customers.

All bad things.

Fortunately, you are about to learn the differences with each approach, so that you can have an educated discussion with your board and choose one you and the board agree upon.

Your confidence level will increase, and the board will see that you are guiding clear decisions. You will start off on the right foot toward a successful sale.

The first approach is the “one buyer” approach. This is likely the most discreet.

You have a buyer lined up and you have confidential negotiations with just the one party.

While this is likely the most discreet approach, it probably won’t deliver the most value.

It could open the board up to criticism by the shareholders regarding maximizing value.

Shareholders may feel there is something in it for management – like a cherry role with significant compensation and benefits.

Not saying there is.

But to shareholders it might have this appearance.

The second approach is called the “one bid” approach. The “one bid” approach stands at the other end of the spectrum from the “one buyer” approach.

Many are invited into the process – lowering discretion for sure.

Those invited in get to offer one bid, accepted on one date.

Highest bid wins.

That may yield the highest price, maybe not, but certainly at the expense of discretion.

The lowered amount of discretion exposes the bank to a whole host of risks.

If employees and customers get word of a sale, they could possibly leave in advance of the sale, lowering overall value.

You may be thinking, “Well that will be the buyer’s problem.”

Maybe, but there is also the possibility that something could derail the whole transaction prior to closing, and you are then left to salvage the wreckage.

This could open another avenue of criticism by the shareholders along with a whole host of additional problems.

The third approach is to invite more to the party than one buyer, but not broadcast the event as an auction, or have a hard and fast winner-takes-all one-time bid format.

I call this the “strategic” approach.

This approach is more discreet than the auction, with one-on-one conversations taking place amongst several potential buyers, and control of the competitive process along the way.

Our board chose the “strategic” approach. Having gone through the process, it was a wise choice.

We were able to manage the process, keep it discreet, and maximize value.

Tying it back to your journey – give it some serious consideration on your own.

Have a productive conversation about it with your board.

It should be your board only.

If you have any non-board employees who regularly attend board meetings, it would be very wise to have this discussion, or any discussion around a sale or merger with only the board.

These types of discussions around strategic options are very sensitive.

Not everybody can handle the discussions objectively.

Choose wisely who hears these discussions.

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.

What are your thoughts?

I’ll see you next week.