6 Fantastic Ways to Educate the Board on Community Bank Mergers

In the six or seven years leading up to the board’s decision to explore whether our bank would be of interest to a buyer, we invited an investment banker as a guest speaker at our Annual Meeting of the Shareholders.

The importance of having a relationship with an investment banker was instilled in me when I was doing capital markets/corporate finance work earlier in my career prior to starting the bank.

Having a relationship would be a strength in the event we ever needed their services.

Buying a bank.

Raising additional capital.

Subordinated debt.

Or, selling.

Better to “dig your well before you’re thirsty” from my perspective.

Each year we would feature an investment banker to review the state of the industry from a bank mergers & acquisitions perspective.

When you think about it, anything that is taking place in the industry will ultimately be reflected in the bank M&A environment.

We opted to hear from different investment bankers through the years.

Hearing from different investment bankers provided different perspectives, although staying on the same topic.

It was a great opportunity for our board to become familiar with the investment bankers.

It was also a great way for the investment bankers to become more familiar with who we were on top of providing a great opportunity for our board, our management team, and our shareholders to understand the factors driving value. Both from a macro and a micro perspective.

Often investment bankers will make a presentation to your board, when asked, for just the expenses associated with making the trip.

They too enjoy the opportunity to meet the board.

The Annual Meeting presentation with the invited investment bankers provided an opportunity to educate the board and keep them updated early in the year.

The annual review of our Capital Plan was also an opportunity to educate the board and keep them updated later in the year, usually while we were building our plans for the next year.

Here were the six ways we did that:

• Value drivers and detractors: ensuring our board understands what drives shareholder value as well as understanding it is not about multiples.
• The sales process and timing: the key steps of a sale transaction, as well as the timing for each of the stages in the process.
• Key deal terms: such as consideration type (all cash, a cash & stock mix, or all stock), severance, change-in-control and severance impacts, contingent deal values (e.g., investment portfolio) and minimum equity covenants.
• Confidentiality: the importance of protecting value, employees, and customers.
• Role and value of an investment banker: ensuring the board understands the value and benefits of engaging an investment banker (as a reminder, I am not an investment banker, lawyer, or an accountant – I just have been in your shoes) like:
  • Superior pricing
  • Market intelligence
  • Awareness of buyers’ appetites
  • Reduction in execution risk
  • Freeing up management to keep the bank’s performance on track
• Market timing: consider the industry and economic conditions overall. Bank M&A is cyclical, so it is important for the board to understand valuation and deal activity during the stages of the cycles.

The presentations over the years provided the educational backdrop for the presentation to the board and discussion about exploring the potential sale of the bank.

As you can imagine, it was a very significant discussion.

Despite the education and making the decision to explore the market, we had no guarantee that we would find:

• A market that would be in our favor.
• Market conditions would hold favorable throughout the process.
• A valuation that would be attractive to the shareholders.
• A good cultural fit for our employees.
• A strong match for our customers to grow with the surviving bank.
• All of this needed to remain highly confidential.

However, we were aware of all of this because we educated ourselves.

Because we did, we had our eyes wide open.

Having our eyes wide open allowed us to focus on finding the best opportunity rather than the process.

Action plan:

• Audit your current process for educating the board on bank M&A activity.
• Build a plan for addressing any deficiency(ies).
• Do you have these types of conversations with your board during your annual meeting or the annual review of your capital plan? Why, or why not?
• Do you have a relationship with an investment banker(s)? If not, build a plan to change that (or to add relationships) within the next 180 days.
• Would you like a free download of my “5 Stages of Selling the Bank” to use as a guide for you to educate your board as you see fit? If so, click here.

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.