Bank Mergers: Sellers Board Approval – What are the critical elements?

Bank Mergers: Sellers Board Approval – What are the critical elements?

 

You have made it through the grind.

The definitive agreement has made it to final form and is ready for board approval.

 

The bank continues to perform well.

The time to announce the deal is right around the corner.

 

Your mind is racing with thoughts about what the shareholders will think, what the employees will think, and what the customers will think.

What will the next few months hold prior to closing?

What could possibly happen that could derail closing?

Will the regulators approve the deal? How long will that process take?

 

You haven’t had an opportunity to think about what your role will be going forward.

That will continue to take a back seat.

For now, you must just focus on your next step. Board approval.

 

As with all the board meetings on this topic, the special meeting is limited to just the directors. In addition to the board, the investment bankers and legal counsel will also attend.

 

In our case, and for your time reference, this meeting took place seven months past our first meeting on the topic. We were pretty much right on the date in the deal timeline that had originally been presented to the board by the investment bankers.

Legal counsel will typically remind the directors of their duties.

The duties of good faith, care, and loyalty.

 

Legal counsel will answer any questions that may have arisen during the review process. Questions like, “In your opinion, did you see anything that you perceived as acting in self-interest come into play with our decision to go with this buyer?”

Or “Do you feel, given your background and experience, that this process ultimately achieved the best outcome for the shareholders?”

 

If you have engaged the investment bankers to supply a fairness opinion, which documents the process followed by the board during the sale to mitigate risk of shareholder liability, the investment bankers will walk the board through a summary of the fairness opinion.

The summary is a high-level review of the very detailed financial analysis they have carried out to arrive at their conclusion.

 

Following the walkthrough of their analysis, they will issue their opinion as to whether the merger consideration to be received by the shareholders is fair from a financial point of view.

The investment bankers will answer any questions that may have arisen during the fairness opinion process.

 

Next, legal counsel will provide a summary overview of the definitive agreement, voting rights, and restrictive covenants.

As you can imagine, despite this being a summary, it can take some time. The directors are encouraged to ask questions throughout the entire review process.

 

Following those items, a brief description of the timeline of the remaining process is discussed.

What is left to finish, generally, is:

  • Approving your side of the transaction and executing the signature pages to be held in escrow by your counsel.
  • The buyer’s board approves their side of the transaction and executes the signature pages to be held in escrow by their counsel.
  • Announcing the buyer and seller have signed a definitive agreement to merge.
  • Continuous work by both sides on various closing matters – which we’ll cover in a future newsletter of what takes place between the announcement and closing.
  • A special shareholder meeting of the seller asking for approval of the transaction.
  • Obtaining regulatory approval.
  • Closing the deal.
  • Conversion of the shares for the merger consideration.

 

And, of course, at the closing your board will cease to exist as the bank and the holding company (if applicable) will cease to exist.

There may be members of your board, or all of your board, continuing with the merged bank/holding company if there was a stock or cash and stock combination for merger consideration. In an all-cash transaction, there are likely no members of your board moving on with the merged bank/holding company board(s).

The board is reminded that the announcement of the signed definitive agreement stays confidential until legal counsel confirms that everything is in order from a documentation perspective.

The non-board shareholder to this point still has no knowledge of the deal until it is announced.

 

Congratulations on reaching this achievement.

It is a significant milestone.

Your relationships with customers, employees, and shareholders will be moving to a new chapter and it is too significant not to acknowledge it here.

You have invested a great deal in all those relationships.

 

Now you know how those relationships will be affected in the long term.

Your key employees will benefit from the CICs and Stay-Puts (if you have them). They will have a much bigger platform in which to continue their careers, your customers will have more borrowing capacity to grow, more products and more locations will be available, your shareholders will be able to monetize their investment and will have participated in the value creation and the buyer will have great employees and great customers helping build value for their shareholders as well.

The community you have served will now be served by a bigger bank with more resources.

 

There will undoubtedly be some transition noise along the way that may test some of those relationships, but if you’ve done it the right way, history will be on your side.

That noise arises mostly from places you weren’t expecting.

Perhaps a key employee who may be looking at this emotionally and is upset it is happening.

Or perhaps, shareholders who may not have wanted to sell their investment at this time because they were hoping for a longer-term time horizon or are themselves emotionally attached to the investment.

I am not saying there will be a tremendous amount of it, but there will likely be something that surprises you.

 

Things are about to change.

 

 

Action plan:

  • Consider your fiduciary duties – is there anything there that needs to be addressed before proceeding down the path of selling the bank?
  • Familiarize yourself with those duties prior to proceeding down the path of selling the bank – there is too much at risk to be unclear with your duties.
  • Think through your relationships with your customers, your employees, your shareholders and your community – is there anything that you dread dealing with? Are there any resources or tools that could change that dread to relief? There likely is – many are in my book, the more time you have to implement them, the better.
  • Think through what your announcement message sounds like. What bothers you about the announcement? Can what troubles you about the announcement be remedied by resources or tools, rethinking the approach, or better messaging? This process can help you uncover an area(s) that is troubling you and bring it to the surface and brought to a positive resolution.

 

 

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.