Bank M&A: Board “Insider Agreements” is it a best practice to get them?

Any whisper of a potential sale of your bank will decrease the value of the shares and will have your competitors calling your employees and your customers.

The board has an implicit confidentiality agreement they are always operating under.

Legend has it, that whenever word is leaked about a bank exploring a sale, the leak is usually traced back to a board member having a casual conversation with a trusted friend, partner, or spouse.

So, we viewed it as a best practice to put in place an “Insider Agreement.”

Creating an agreement with each board member and internal “deal team” member served as an effective reminder of the stakes involved. The formal signing of the document further emphasized the gravity of the responsibility. 

Confidentiality is critical throughout the process.

It is important that everybody is on the same page as to how you’re going to go to market for a potential sale. (Not certain what I am talking about? Click here to review The Savvy Banker Newsletter 005 for more information.)

You cannot afford to let even one word leak.

The consequences of a leak could be disastrous.

The Insider Agreements put everybody in a position where they did not want to be a source for a leak.

We had very experienced counsel who were very supportive of putting the Insider Agreements in place.

As a reminder, I am not a lawyer, so it is strongly recommended that you seek legal counsel for your Insider Agreement.

New Insider Agreements were gathered any time we added a party of the Deal Team (any employee who had to be involved on a need-to-know basis).

We also gathered Insider Agreements from the management team when they eventually learned of the deal, just a few hours prior to the first public announcement that we had entered into an agreement to merge with another bank.

In all cases, it was beneficial to be able to say that each board member, and each employee involved in the process had signed one prior to passing along any information.

Action plan:

• Consider if having an Insider Agreement in place with each member of your board of directors and each member of your deal team would present any issues for you.
• Discuss having an “Insider Agreement” drawn up with the legal counsel you would engage to represent your bank in a sale (For more information, click here to review The Savvy Banker Newsletter 031 for choosing the right legal counsel).
• When having conversations with the board of directors about a possible sale, make them aware of the importance of confidentiality and make them aware that an Insider Agreement will be coming.
• Make your investment banking partners aware that your board and deal team will be signing Insider Agreements. Your investment bankers should be highly aware of the importance of confidentiality, but this can serve as a reminder to them as well. It carries with it the knowledge that they will not want any leak traced back to them either.

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.