Bank M&A: Who is really interested and who is lurking?

There are “serial” acquirers.

There are “occasional” acquirers.

There are “future” acquirers.

And there are “lurkers.”

Serial acquirers are just that. It’s part of, if not all, their overall growth strategy. They are very efficient, and they have processes and people for integrating bank acquisitions.

Occasional acquirers pop up every now and then to make a strategic acquisition. There are some frameworks they repeatedly use, tailoring it for each individual circumstance, and some of the same people may be involved.

Future acquirers have not yet made a bank acquisition, but it is on their mind, and they are “practicing” for the real thing, which may or may not occur. They go through the drill, maybe put in a low offer (hoping they don’t win yet). They are doing some rehearsing, putting a toe in the water so to speak.

Then, there are lurkers. They don’t really have any acquisition plans. They are more likely to be involved because they are just curious about what is going on.

I am not knocking any of the “types,” merely pointing them out so you will be familiar with identifying them.

When raising money to start the bank, the types were similar, so I had an opportunity to familiarize myself with them at that time.

In either case, it is important to understand them, or you may be wasting some time.

If you are working with investment bankers, they are very adept at identifying the types and can be very helpful.

There comes a point when you need to determine how interested a bank acquirer may be.

It becomes time for people to explicitly state their level of interest.

Like the days when raising money to start the bank, all yeses are not alike.

It’s a little like when the dinner bill comes to the table and some arms get shorter than others.

Or when it is time for someone to write the check, they struggle to find their checkbook.

There are “confirmation” yeses and “commitment” yeses.

Confirmation yeses are generally innocent.

They are typically a politeness reflex.

Just a simple affirmation with no promise of action.

There are direct communicators and indirect communicators.

There is no right or wrong in either style.

But there are two styles.

You are going to encounter bank acquirers who say yes, they are interested.

It’s then up to you to find out if they are confirmation yeses or commitment yeses.

The best way to do that is to ask for written, non-binding, offers.

That request typically takes place after you have rounded up interested parties.

The timing of when the group is lined up and the next step can’t be too far apart.

You don’t want too much daylight between interest and action.

Time is not your friend.

The interested parties are asked to demonstrate their level of commitment to the process by signing a non-disclosure agreement (NDA).

A quick deadline for offers is set, usually a week or two, so that truly interested parties will go through the process and submit their offer.

Most confirmation yeses will opt to sign the NDA and can view the information needed to make an offer.

Once an NDA is signed, the acquirer will be provided access to a Confidential Information Memorandum or “CIM” (often referred to as and pronounced “sim”).

Provided in the CIM is a roadmap of next steps in the process and some higher-level supporting information.

Also included in the CIM is a table of contents for deeper dive information they have access to in the virtual data room.

In this process, a great deal of information is shared.

Things such as strategic plans, corporate organizational structure, financial information, characteristics of the loan portfolio, other real estate owned (OREO), investment portfolio, deposit composition, other liabilities, management, and personnel compensation, materials contracts, and insurance coverage as well as branch and facilities information.

It is the information you would want to see to put together an offer so that the offer is credible and both parties know it is in the ballpark where the best and final offer would be.

This is a dance, likely with experienced advisors on both sides. It is a very well-choreographed dance.

It isn’t in anybody’s best interest for this process not to be efficient.

If represented by an investment banker, there will be strict instructions not to contact anybody at the bank directly.

That includes you, any directors, or any employees.

All questions should go through the investment bankers. They will retrieve the answers and respond.

If you are not using an investment banker, you will be fielding all the calls.

Think of it as a single point of contact for multiple exams taking place at the same time.

Investment bankers field the questions, answer as many of them as they can, and pass along the questions that the subject matter experts on your deal team can answer.

The subject matter experts communicate back to the investment bankers to communicate back to the buyer’s team.

Only those questions that remain following the process are questions that need your attention.

You provide those answers back to your investment bankers who in turn share the information with the buyer’s team.

Some will view the information, and some will not, you have some protections from the fact they have signed (see The Savvy Banker newsletter 034, “Bank Mergers: Non-Disclosure Agreements – how to look at them”). They will likely use the deadline to opt-out of going any further in the process.

You will learn through this process how many commitment yeses you have.

You are hoping for more than one.

More than one can help a great deal in creating competition.

Competition makes the world go-round.

Action plan:

• Imagine taking your bank through this process. Picture the process in your mind.
  • You may have many interested parties, or you may have few. In either case, it’s best to show others that you have just the amount you’re looking for.
  • You’re about to give out some very sensitive information – you are giving up some control. It’s measured, but you will be giving up some control.
  • You have no idea what values will be showing up.
  • You have no idea what the composition of the offers will be.
  • You will have no idea who will be asked to move forward with the buyer and who won’t.
  • You won’t know if there will be a tight grouping of offers, or a scattershot of offers.
  • You won’t know if your shareholders will vote in favor of an offer at this point or not.

Get comfortable with being uncomfortable.

Take things as they come, that’s all you can do at this point.

What you have done up to this point is what you’re about to get a score on.

The reason you want to work on this well in advance of a sale is for this point of the process.

Who here feels like they have work to do if they were to put their bank on the market tomorrow?

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.