Bank M&A: What do buyers think we’re worth?

Your board decided to pursue the possibility of the sale of your bank.

Information has been collected, organized, and conference calls between the investment bankers have taken place to ensure that the information is a fair representation of the bank.

Research has been conducted by the investment bankers to quantify the data and compare it for the potential buyers.

Potential buyers have been found, contacted, and qualified.

One-on-one meetings have taken place.

NDAs have been collected.

The CIM (Confidential Information Memorandum) was developed, and the virtual data has been open for robust study.

The investment banking team has fielded questions, answered many, sought answers from your deal team and responded.

You’re about to get an answer to the question, “What does the market think we’re worth?”

It’s the moment of the big reveal.

Even though these are non-binding offers, they are still serious offers and an indication of value.

We talked about the confirmation yes and the commitment yes in The Savvy Banker newsletter 035.

A “confirmation yes” is generally innocent, a reflex, just a simple affirmation with no promise of action.

A “commitment yes” is the real deal, it is a true agreement that leads to action.

For perspective only…

We had eleven parties who had expressed an interest in proceeding, signed NDAs and began the process of putting together a non-binding offer to meet the short deadline.

The eleven being interested in continuing the process was affirmation that the market believed we had value.

We received five written offers.

Five written offers were further affirmation we had value.

They were “commitment” yeses.

Five written offers out of the 11 (45%) indicated they wanted to move forward.

Six were “confirmation” yeses—55%.

The next questions that needed to be handled were:

• What is the value?
• Is it worth continuing?

The rationale for the six opting out was very similar to the rationale we had heard when the investment bankers were calling for initial interest. Things like timing, insufficient ability to manage the opportunity right now, market is not a fit, a core system conversion will interfere with timing, etc.

An acquisition is a big step for buyers and sometimes it just takes a “live fire” drill to find reasons for them to acknowledge that now’s not the time.

We appreciated the fact that they thought enough of us to go this far through the process.

They had a sincere interest, and we were grateful for that.

But now it was time to focus on the offers that were received.

A specific format for submitting the offers was supplied by our investment bankers.

This was to allow for an apples-to-apples comparison of the offers.

The format also allowed for each buyer to add their “twist” to their offer.

The investment bankers began to deconstruct the offers as they came in.

Questions arose that required follow-up during that process.

Some questions were asked to gain a deeper understanding of a particular element of the offer.

Other questions were asked to reaffirm their understanding of the offer.

In our case, the offers were due at the close of business on a Friday.

That gave the investment bankers the weekend to do their analysis.

They reported their findings to me, verbally, on the following Monday.

We set an in-person board meeting for Wednesday to discuss the offers and our investment bankers’ analysis. Setting the meeting for Wednesday allowed for schedules to match up and for the investment bankers to travel.

I did not communicate anything regarding the offers to the board prior to that meeting because I didn’t want to influence anybody’s understanding of the offers.

The board needed to hear the offers and the investment bankers’ opinions of the offers in-person, and at the same time so an unbiased dialogue could take place.

Action plan:

• Consider the significance of what is taking place during this process.
• What would the consequences be if there were no offers you felt the shareholders would approve?
• These are non-binding offers at this point – there is still a great deal of work to be done if there is an offer(s) that would be acceptable – we will be covering that more in future issues of the newsletter (if you would like to read ahead, you can do that by ordering my book – “The Art of Selling Your Bank: A Bank CEO’s Step-By-Step Guide” available on Amazon).
• At this stage, you should ideally have multiple offers worth considering. It’s crucial to maintain confidentiality; no one should be aware that your board is evaluating these offers. While you may have a rough estimate of your bank’s value, it’s important not to assume the process is nearly complete. Stay focused and pay close attention to detail.

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.