Bank M&A: The right way to clarity in an investment banker?

When you bring serious people to the table, you are signaling to your potential buyer pool,

“We are serious.”

Your advisor team are the serious people you are bringing to the table.

Your investment banker, your lawyer, and your accountant.

For those who may be thinking, “I don’t want to scare somebody away by involving an investment banker right out of the gate,” I can promise you that a serious buyer would love to see somebody involved who understands the M&A process.

Knowing that your value may go up a bit by using an investment banker is a trade-off they will gladly take because a serious investment banker increases the percentages that the deal will get done.

So, to them, success is about cutting friction and mitigating risk throughout the process to maximize the probability of making the acquisition succeed in the long term, not saving a couple of bucks on the front end.

On one phone call, the right investment banker immediately introduces to the buyer that the seller is serious about selling and that the investment banker can create competition for this opportunity.

The buyer knows if this call doesn’t go well, the investment banker has a list of potentially interested buyers to call next.

This is a critical point because with an investment banker, you take control of the process; without an investment banker representing you, the buyer has control.

This all helps maximize your value and keeps everything on a timeline.

Our investment banker, Christopher Olsen of Olsen Palmer, often reminded us “You never step in the same river twice,” borrowed from the ancient Greek philosopher Heraclitus’ quote: “No man ever steps in the same river twice, for it is not the same river and he is not the same man.”

Time represents risk, and as bankers, we know that very well—our business is based upon it.

The work we have been covering in prior newsletters is all to help prepare you for conversations with your investment banker.

Your investment bankers will need to be fully prepared to know all the red flags because the buyer will see them. Your investment banker will want to have this knowledge, so they aren’t taken off guard.

The more they understand, the more they can match your bank against the landscape of potential buyers to find the best opportunities for you.

A sell-side investment banker in the bank merger & acquisition space is where you want to look for help.

Sell-side investment bankers work on the seller’s behalf.

Buy-side investment bankers work on the buyer’s behalf.

Simple enough.

There are investment bankers that work both buy-side and sell-side engagements.

I’d like to think everybody is ethical and is loyal to the party that has engaged them.

But how do you really know if the banker that represents both is truly working on your behalf?

Just my opinion.

All investment bankers are not the same.

Interview investment bankers the same way you would interview anybody else.

Yes, they may speak a different language, go at a different pace, and many are from another part of the country.

But you only sell once.

For my money, I would search for somebody whose sole focus is on bank M&A, and primarily, if not exclusively, in sell-side bank M&A.

Whether it is reducing risk on the transaction or on the price, a good investment banker can pay for themselves many times over.

A good sell-side investment banker helps with intelligence on your potential buyers.

They know who those buyers are talking to, or not talking to.

Your investment bankers are running the data room, negotiating, answering questions, swapping information, arranging meetings, coordinating schedules, and managing the project overall.

We had five potential buyers who were going through due diligence initially.

Consider this, it is like five safety & soundness and IT exams going on simultaneously.

The investment banking team was fielding calls and answering as many questions as they could without my involvement.

They were also gathering questions that needed further follow-up to consolidate them and make them as efficient as possible for our internal deal team.

We still had a bank to run.

Deal or no deal, the bank’s performance cannot wane during the process.

The bank’s value could suffer if it does.

Or if the deal were to fall through, you will have significant issues left for you to confront with your board and your shareholders.

Look for a high-touch, private client approach from your investment bankers.

Thoroughly vet the investment bankers you are considering.

As a banker, you know the difference between a relationship banker and a banker who is just interested in the next transaction.

Look for signs that the investment banker you are looking to hire is a relationship banker.

That includes ensuring a significant investment in getting to know your bank.

Preferably the firm you choose will have a broad reach to buyers throughout the United States, along with the sell-side expertise to analyze the offers and the experience to avoid potential pitfalls.

In short, look for sell-side specialization, which provides a lack of buyer conflicts.

It’s an important decision to make, and investment bankers that understand the whole picture are likely to do a better job maximizing shareholder value on your deal than somebody who is just looking to do a deal.

Look beneath the surface.

Build relationships with investment bankers.

Relationships are two-way streets.

As with any relationship, it is never too early to start.

Attend their conferences and webinars.

Meet with them at your state bank association conferences—they are often sponsors.

Meet with them whenever possible for lunch, dinner, or drinks.

Make note of who comes to see you while understanding their time is extremely valuable.

Go out of your way to get to know them.

In the end, with all else being equal, you will want to work with somebody you feel the most comfortable with and trust.

I am not an investment banker, lawyer, or an accountant.

But I am a banker who has been in your shoes and has been through the process, so I can provide some insight that may help.

My goal is to share my experience so that you can build a bank you can own forever or sell tomorrow if the situation is warranted or required.

I would like to see deal values increase – industry wide.

That happens if bankers are properly prepared when the time comes for selling.

An investment banker can only work with the bank they are engaged to sell.

They don’t have any potion that will magically increase the value of your bank.

They negotiate better deals than you likely would on your own given they:

• Know the buyers.
• Introduce competition.
• Have deal knowledge.
• Keep things on track.
• Have a track record of closing.

The underlying bank is what the investment bankers must work with.

Imagine what that would mean if you could improve that value by 10% (or more?).

The industry can do a much better job of educating you on the process.

Until then, you’re going to have to do that through self-education.

You’ve got this.

Action plan:

• Review the relationships you have with investment bankers.
• Study who the investment bankers are if you have no relationship.
• Who owns the firm(s) you are considering? What are their goals?
• Seek an opportunity to build relationships with several investment bankers.
• Look for opportunities to attend conferences or seminars they are putting on.
• When they call to say they are in the area and would like to stop by, take those calls and meetings. Who visits you? Who doesn’t? Take note of those things.

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.