Bank Mergers: How does a successful “deal team” and data room work?

We had a small but highly effective board of five people.

This is provided for perspective.

There is no right or wrong answer for the size of your board.

Ours happened to be the minimum size allowed by state statute (we were a state-chartered bank).

We felt that size was more efficient for us.

We had three outside board members and two inside board members, including myself as chairman and CEO, along with our president. As a relatively young bank (16 years old), both of us wore multiple hats until the bank was sold.

As inside board members, we possessed more day-to-day knowledge across all aspects of the bank than a longer-established institution typically would within a more traditional ‘silo’ structure.

The side benefit of that was that we would keep our “deal team” limited in size.

As more of the management team was hired and developed, the number of hats the two of us were wearing decreased. Despite handing over those duties, we still maintained a very good understanding of what was happening throughout the bank.

Due to the highly sensitive nature of the project, the deal team comprises only those individuals who are essential to the process. Additional team members are added on an as-needed basis.

Only our board had knowledge of the project.

My point in bringing this up is that the makeup of your “deal team” will depend upon your individual circumstances.

You may need to include your chief credit officer earlier in the process.

You may need to include your lead IT person earlier in the process.

Or you may need to include your human resources lead in the process.

Your situation will be unique to you and your depth of understanding the details of your bank.

Our president could answer most, if not all, questions about our individual commercial customer relationships as well as our overall loan portfolio credit quality down to each specific borrower. Therefore, we didn’t need to bring our chief commercial officer or our chief credit officer into the mix, or “under the tent” as it is often referred to.

We brought in our chief financial officer to go deeper into our financials.

You never really know how a meeting about bringing somebody “under the tent” will go until you have it. But we had done some things prior to this that hopefully would mitigate the risk associated with that conversation.

Primarily, it was a general understanding amongst the management team that this was a business.

We emphasized that we were building shareholder value.

We emphasized the differences in stakeholder value and shareholder value.

We also emphasized that capital follows value, and we were developing a competent and skilled team.

The team was managing a project, that project happened to be a bank.

Generally, the fear of bringing any employee under the tent is that word will get out and the value of the bank will go down.

Employees may seek employment elsewhere or customers may come under even greater competitive pressure to leave.

Additionally, your fear is that an employee will lose focus and engagement.

This is another reason why the Change-In-Control agreements with your key people are so valuable to the bank and its shareholders.

Your key people have a great deal to benefit from a change-in-control agreement. The agreement can serve to heighten engagement and confidentiality.

The Stay-Put feature also ensures they have a cooperative stance with the buyers in the long run rather than taking on an “us versus them” posture.

Although the Change-In-Control agreements have confidentiality clauses, having an Insider Agreement (see The Savvy Banker Newsletter 031, for more on Insider Agreements) signed as an added emphasis is also a great reminder.

Being able to say that each board member has signed an Insider Agreement goes a long way to affirm buy-in.

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

So, if you’re keeping count, at this point we had three insiders (chairman and CEO, president, and chief financial officer) as our deal team.

We will now need to begin the process of fulfilling the data request from the investment bankers.

Investment bankers electronically gather and review your bank’s information, addressing any resulting questions with you. They populate the virtual data room, which becomes accessible to potential parties throughout the process.

The data room serves as a crucial information hub from start through closing. Investment bankers manage credentials, collect non-disclosure agreements, and revoke access for banks no longer under consideration.

This service is another major reason why using an investment banker is so valuable to the project.

You have a bank to run, and that means your people’s time is incredibly valuable. Having a team behind you that can handle this is critical on many fronts.

Our initial Deal Team was expanded later in the process. This will be covered in a future newsletter, but for now the team is still very limited.

Action plan:

• Think through who would need to be on your “Deal Team” if you had to go through this exercise tomorrow.
• How comfortable would you feel bringing them into the “Deal Team”?
• Do you currently have any employment agreements or Change-In-Control agreements in place with each of the members you would consider adding?

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 they can own forever or sell tomorrow – 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.