Bank M&A: How to navigate the grind of the merger agreement closing checklist

You’ve hammered out the definitive agreement, announced the signing of the agreement and upcoming merger to your employees, customers, and shareholders, and you are back to the execution of the definitive agreement.

Back to embracing the grind.

The grind is going through the definitive agreement by section in order to gather, organize, notify, build, and supply everything the agreement requires.

Legal counsel, hopefully, has put together a closing checklist for everyone to follow.

If your legal counsel doesn’t have a checklist, have them ask the buyer’s counsel if they have one, and get a copy.

This process is another reason for hiring experienced bank M&A legal counsel so this can be as efficient as possible.

The closing checklist tracks everything needed to be done, who the responsible party is, and any notes or comments to keep everybody apprised of the status of each item along the way.

If you would like a refresher on the items often included in the definitive agreement, please refer to Chapter 28 – Definitive Agreement & Disclosure Schedules in my book or download my road map to the legal agreements.

One nice thing about the process at this point is that all employees are aware of the impending merger. You have more hands to assist in gathering details and data than you did prior to this.

Here is a general list of the items that may be included but not limited to on your closing checklist so you can get a flavor of the activities involved:

• Preparation of regulatory applications, for each regulatory agency (all applicable).
• Submission of regulatory applications, for each regulatory agency (all applicable).
• Notification of the merger requirements (possible newspaper publication).
• Estimated closing balance sheet tracking.
• Estimated closing shareholder’s equity tracking.
• Engagement of the paying agent for cash merger consideration (if applicable).
• Engagement of the stock transfer agent for stock merger consideration (if applicable).
• Proxy materials provided to shareholders – the Shareholder Meeting, and all that goes with that, will be covered in our next newsletter.
• Notice of special shareholders meeting materials.
• Delivery of shareholder data to the paying agent for cash merger consideration (if applicable).
• Delivery of shareholder data to the stock transfer agent for stock merger consideration (if applicable).
• Termination of benefit plans.
• Shareholder approval election results.
• Directors and Officers (D&O) insurance tail coverage.
• Title(s) to real estate.
• Real estate survey(s).
• Environmental investigation(s).
• Termination of any deferred compensation plans & accrued payments.
• Termination of any company bonus programs or lump sum payments.
• Regulatory approvals from each regulatory agency (all applicable).
• Cash merger consideration to the paying agents (if applicable).
• Stock merger consideration to the stock transfer agent (if applicable).
• Board approval(s).
• Buyer’s officer certificate.
• Seller’s officer certificate.
• State(s) merger certificates (all applicable).
• Payment of accrued accounts under deferred compensation plan(s).
• Payment of bonus program lump sum(s).
• Third-party consents provided to each vendor who has requirements for notice in their contract.

In addition to the closing checklist that legal counsel is following, as part of the access and investigation compliance and/or operation in the ordinary course of business activities agreed to in the definitive agreement, you will also have monthly (and periodic) reporting to the buyer of items that would generally include but are not be limited to:

• Monthly financial statements.
• Monthly budget comparisons.
• Monthly Asset/Liability Committee (ALCO) packets.
• Weekly loan committee agenda, approval packets and minutes.
• Monthly board packets.
• Post-closing, there are items for tracking and generally the following would be included, but not limited to:
  • Notification to regulators (all applicable).
  • Return of the physical charter certificate to regulator.
  • Circulation of the closing documents (full set).
  • Form of the Letter of Transmittal from paying agent and/or stock transfer agent.
  • Delivery of letter of transmittal(s) to shareholders.
  • Payment of cash merger consideration (if applicable).
  • Payment of stock merger consideration (if applicable).
  • Release of conversion fund remainder (cash, if applicable, following an expiration of claim date).
  • Change-In-Control payment(s) (if applicable).
  • Stay-Put payment(s) (if applicable).

Nearly every item listed has an above-average level of work associated with it.

There are items that will involve others outside of the buyer or seller’s employment base, and you are subject to their calendars and cooperation.

Those items that require the input of others, such as environmental inspections, title reports, real estate surveys, and D&O insurance tail coverage, should be engaged as soon as possible to allow for the time necessary to get them done.

Third-party consents take time to send out and get back, regardless of how many you have.

BONUS TIP: If third-party consents are a part of your annual review of the vendor management program with the board, the information needed on who you need to get consents from should be in good shape and ready for action – a major time saver.

The process can feel like pushing a rope.

There is no way to sugarcoat the process, and it is better mentally if you embrace the grind.

The best way I can describe it is this:

The Daytona 500 is a 500-mile race on the 2.5-mile Daytona International Speedway track.

That’s 200 laps.

This process is the 198 laps between the first lap (announcement) and the final lap (closing).

As they say in stock car racing, “Rubbing is racing.”

There likely will be rubbing during the process, and patience wears thin on both sides.

Rely on your legal counsel and your investment bankers when needed.

It will keep the buyer and seller relationship in the best possible shape at the end of the race.

Action plan:

• Take some time to look at every item listed. It’s human nature to look at the list and quickly move on. Take some time to consider what the work is behind each item on the list. Who needs to be brought into the process, the timeline considerations, etc. Some forethoughts will make the process easier.
• After you make considerations of who all will be involved in gathering the information, take some time to consider what can be batched together. Having this list of batches will allow you to see who will be impacted the most and how to sequence the requests you will be making so efficiency will be gained. Doing this will save working relationships and keep the bank running smoothly through closing. You cannot afford to let bank performance slip during this time. The deal has not closed yet.

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.