Bank Mergers: The LOI is signed – Want to know the right way to manage the bank?

Okay, you have signed the letter of intent (LOI).

You have agreed on a framework of terms for merging your bank into the buyer’s bank.

This is still non-binding – it is a letter of intent.

Confidentiality is still critical.

Just ask the PGA – they were at this point when word leaked out about their merger with LIV. The merger (at the time of this writing), over a year later, is still not any further along.

It’s a mess.

The framework has the buyer indicating they are willing to buy.

You, as the seller, are willing to sell.

Now you have a framework of terms that, in general, are what the two parties can agree on.

It is time to focus on the details of those terms – to finalize the definitive agreement (sometimes referred to by others as the “merger agreement”) and the disclosure schedules. If you would like my free guide of what’s included in the definitive agreement and the disclosure schedules, titled: “Bank Mergers: From LOI to Closing – A Road Map to the Legal Agreements” click here.

The level of inquiry goes up substantially throughout this process.

The deal team manages the process throughout.

There is periodic involvement of the investment bankers during this part of the process, but the lion’s share of the work at this point is between the deal team and legal counsel.

Documents for this part of the process are generally shared directly with legal counsel, who in turn gathers them and forwards them in coordination with the buyer’s counsel.

Parallel to working on the definitive agreement and the disclosure schedules, you will begin working on the proxy materials (we will be discussing this in an upcoming newsletter, however if you would like access to them sooner - the materials are in my book and detailed in Chapter 35 – Shareholder Meeting) for the shareholder’s meeting and going through the mechanics of the conversion of your shares at closing (this too will be a topic of a future newsletter and is discussed further in Chapter 41 – Conversion of Shares). To order a copy of The Art of Selling Your Bank: A Bank CEO’s Step-By-Step Guide, click here.

Suffice it to say, as soon as the announcement of the merger is made (following the signing of the definitive agreement), the shareholders’ first questions will be,

“When do I get my money (or stock, or cash and stock)?” Followed by,

“How does the process work?”

You and members of the deal team will be answering questions, gathering documentation, and responding to requests from your legal counsel very frequently over the time chosen to get the definitive agreement done.

All of those supporting documents will need to be reviewed by the buyer. They could possibly bring something to light that could delay or cause the whole merger to derail.

There’s no way of putting a pretty bow on this—this part of the process is truly a grind.

You, the board, and the deal team are still the only ones with knowledge of the transaction.

Board approval follows the completion of the definitive agreement, followed by an announcement of the merger to customers, employees, shareholders, and the media.

You still have a bank to run, albeit with some new constraints to be mindful of included in the terms of the definitive agreement and the disclosure schedules. Again, if you would like my free guide of what’s included in the definitive agreement and the disclosure schedules, titled: “Bank Mergers: From LOI to Closing – A Road Map to the Legal Agreements” click here.

The terms are not committed fully to writing yet, but they need to be treated that way in principle so as not to put anything in jeopardy right out of the gate.

Managing the bank through the lens of the details of the terms does have to be balanced with the fact that this transaction is not done by any means.

A nuclear war could break out, derailing it, and if that sounds too far-fetched, we’ll make it a global pandemic instead. That should help keep it feeling real.

If the transaction doesn’t move forward, the bank needs to keep moving forward without it.

That needs to be remembered.

Decisions you would make daily, if there were no deal happening, still need to take place. Now those decisions must be passed through a lens.

You’re one of a few people that know about the lens, so you need to adjust accordingly.

The loan approval process is one big lens you need to be concerned with as well as any major decisions going forward.

When in doubt about whether a decision violates a covenant or changes the complexion of the transaction, discuss it with your legal counsel.

Make sure to keep in mind if things go the wrong direction, you are ultimately accountable.

It’s a great deal of pressure.

You need to ensure the bank continues to perform, if something were to happen like a large borrower suddenly announces difficulties that put the repayment of their debt in jeopardy, or you suffer a major cybersecurity event, or a key employee decides to leave for an opportunity elsewhere, these could change the value, terms, or possibly derail the whole sale.

Another possibility is the supporting documentation for the representations and warranties contradict what you have recollected.

Now, doubt is placed in the buyer’s mind about a few issues and your credibility is damaged.

Do your own thinking and embrace the grind.

The best advice I can provide is to break your tasks down into smaller pieces and keep focused on completing the next one.

Then the next one after that.

The old axiom of “What’s the best way to eat an elephant? One bite at a time” holds true.

Once the grind is complete, it’s time to bring the board back into the picture. We’ll cover that in the next newsletter.

Action plan:

• Download my free guide of what’s included in the definitive agreement and the disclosure schedules, titled: “Bank Mergers: From LOI to Closing – A Road Map to the Legal Agreements” by clicking here.
• Review the guide and apply each of the sections to your own circumstances.
• Make a list of the things that you can begin incorporating into your operations today to make this process much smoother from an information gathering perspective – such as including all material contracts (those above a certain dollar amount) in your annual vendor management program review, as pointed out in the guide.
• Make a list of those items you would like to complete or clear prior to taking your bank through the sale process (e.g., employment agreements, closing a branch or branches, amending organizational documents, etc.).

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.