Bank Mergers: Deconstructing offers to buy your bank for the best deal

As the initial written, non-binding offers came in during our sale process, the investment bankers began to dissect the offers and build a spreadsheet for their study.

While deconstructing our offers, questions arose that required added follow-up by the investment bankers. They needed to gain a deeper understanding of elements of the offers, and in a case or two, just reaffirm their understanding of the offer.

The process of deconstructing the offers typically takes a couple of days due to its complexity. Time is needed to contact parties and get replies to the questions.

Once the investment bankers could communicate their findings it was time to gather the board for a presentation and to review the next steps.

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.

During the meeting, the investment bankers covered key transaction terms, such as the net consideration value after all the dust had settled.

The presentation covered what that net consideration translated into on a per share basis for our shareholders and what the form of consideration was (i.e., cash, stock, or a combination of the two).

Also covered were any contingencies, such as performance of the investment portfolio, earnings, and contract terminations, which could change the value between offer and closing.

How the transaction expenses were accounted for in the offers and any social considerations such as severance terms, roles for the team, and board seats.

The analysis of the offers was then compared to the detailed valuation analysis originally performed by the investment bankers for their presentation to the board when the process started.

This is an accountability piece that can be easily overlooked from my perspective.

It said a great deal about the investment banking team we selected.

They were not afraid to stand behind the value they presented to the board six months earlier.

Right or wrong, they were making that comparison.

In our case, it was right on.

For an acquisition to come together, it ultimately boils down to having a willing buyer, a willing seller, and a set of terms that all can agree on.

Generally, when all three are present, it’s a good time to sell.

As it turned out for us, the market was telling us that we could be in a situation where we had a willing buyer and a willing seller.

However, we still had some work to do.

Two of the offers were close to one another and higher than the other three.

The two offers were cash offers, similar in value, with slightly different contingencies.

There were some differences in social considerations between the two offers, but the board was comfortable with either offer.

The social consideration difference was that one offer had the potential for management and branding differences, where our team would be kept essentially intact to lead the bank in this market under our existing brand.

The other three offers presented had a stock or cash and stock element and the execution risk was too great for the value presented, relative to the cash offers.

When this situation is presented, it is generally best to thank the three for their interest, work, and stepping up with an offer.

The next step was to move forward with the two higher, slightly separated, offers to see if one could better distance itself from the other.

There are risks involved in proceeding in this fashion.

Namely, time.

Time, as was said earlier, is generally never on your side.

Action plan:

• It’s helpful to take a hard look at what you think your shareholders would like to have for consideration, would they be most interested in:
  • All cash
  • All stock of the acquirer
  • A combination of cash and stock of the acquirer
• What is it that you would prefer? It’s good to know that too.
• Do you and the key people on your team have Change-In-Control and Stay-Put agreements in place to make the form of the consideration moot?
  • If not, should you think about putting them in place?
• Again, consider the significance of reaching this point. Spend some time thinking about what this point would feel like for you.
  • Have you thought about what it would be like to work for an acquirer?
  • Have you considered what you might do if you were to move on at closing, or shortly thereafter? It’s worth noting that until you’ve moved on emotionally as well as physically, your exit isn’t complete.

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.