Don't Wait Until It's Too Late: A CEO's Guide to Bank Sale Preparation
Let me share something I've learned from decades in banking: Most CEOs start thinking about selling their bank when they're forced to.
And that's exactly when you don't want to start.
And just because you’re prepared to sell, it doesn’t mean you need to sell.
Being prepared to sell, with low urgency is the cat bird’s seat.
The ultimate in optionality.
Here is what I call the “Building a Coveted Community Bank Matrix”:
Box #1: The ultimate goal should be to build your bank as if you would own it forever but be in a position for a sale scenario at any time.
That requires an understanding of the sale process and what buyers are looking for.
It takes some work to understand the roadmap – it hasn’t been readily available until lately. (That’s why I wrote the book).
The information that has been (and continues to be) available is from providers.
Investment bankers, attorneys, accountants, etc. All are well-intended, and all bring a great deal of value in their own areas of focus.
But none from the perspective of a community bank CEO. (Again, that’s why I wrote the book).
Conferences focus on it, but the information is rarely from a seller – it typically is from buyers who have a natural inclination to groom potential sellers to contact them – before inviting competition in or not being interested in a bank that wants to get “every last dollar” in a sale.
It’s well-intended, but it’s grooming in my opinion. (And by the way, you’d probably do the same if the roles were reversed).
Your goal should be to understand what is valued and to build your bank to be coveted.
Your terms.
Box #2: Banks in this box have already decided to take action.
A liquidity event is going to happen in the next 12 – 24 months.
Hopefully this bank has been preparing for this and is in great shape.
At this point, with that short of a time period, really all that can be done is polishing what the bank has to offer.
Box #3: Here is where, in my opinion, the lion’s share of community banks finds themselves.
There is going to be a need for a liquidity event, at some point in time. It could be anywhere from three years to five, ten or even twenty years or more.
The liquidity event could be an IPO, a merger of equals, or an outright sale.
Banks in this box have the best chance of moving into Box #1, with the right leadership.
Everyone benefits from aiming for Box #1 as the goal in the long run.
Customers, employees, shareholders, the community, and the buyer.
Box #4: Banks in this box have no intention of selling, ever.
These banks exist, we all know of a bank in Box #4.
Usually multi-generational banks.
The family has accumulated a significant amount of wealth, they have liquidity.
The bank fits in the family’s investment portfolio – it has a spot – and it serves them well.
Here's the truth: Whether you plan to sell your bank next year or never, understanding how to manage your key stakeholders during a potential sale is crucial for any CEO. Today, I'm going to show you how to proactively address the two most critical groups: your shareholders and your board of directors.
Understanding Your Shareholders: Beyond Basic Fiduciary Duty
Every bank CEO understands their fiduciary responsibilities. But when it comes to a potential sale, many of us become "house blind" to the specifics. Let's refresh our memory on the three core duties:
- Good Faith: Every decision must advance the best interests of the corporation and shareholders
- Care: All material facts and available information must be considered before acting
- Loyalty: Avoiding self-dealing and improper benefits from any transaction
But here's what many CEOs miss: These are just the foundation. The real work is understanding your specific shareholder dynamics.
Critical Shareholder Questions You Need to Answer Now
Take out a notebook and answer these questions honestly:
- What does your ownership concentration look like?
- Are there family groups with significant holdings?
- Are founding families still actively involved or just passive investors?
- Would your shareholders prefer stock in a buyer or cash?
- Are there any pending share transfers you need to consider?
- What's your shareholders' appetite for liquidity?
- How engaged were they at the last annual meeting?
- What shareholder reaction keeps you up at night?
Even if you have patient capital and no immediate pressure for liquidity, you need a plan. Think of it as insurance – you hope you never need it, but you'll sleep better knowing it's there.
Your Board: More Than Just Maximizing Value
Yes, your board's primary responsibility is maximizing shareholder value. But during a potential sale, they're looking to you for much more.
They need to know:
Strategic Understanding
- What drives value in our bank?
- What factors could detract from our value?
- How does the market view banks like ours?
Process Knowledge
- What does a typical sale timeline look like?
- What key deal terms should we expect?
- How do we maintain confidentiality?
Professional Guidance
- When should we engage investment bankers?
- What value do they bring?
- How do we select the right one?
The Smart CEO's Playbook: Proactive Steps
Here's something I learned the hard way: Build relationships with investment bankers years before you need them.
Here's how:
1. Annual Meeting Strategy
- Invite investment bankers as guest speakers
- Let them educate your board and shareholders about value drivers
- Give them a chance to understand your bank's unique story
2. Regular Market Updates
- Keep your board informed about M&A trends
- Track comparable transactions
- Understand how different deal structures work
3. Relationship Building
- Meet with multiple firms over time
- Let them get to know your management team
- Understand their different approaches and strengths
Remember the old saying: Dig your well before you're thirsty.
The Time Investment Challenge
I know what you're thinking: "I barely have time to run the bank, let alone plan for a hypothetical sale."
Here's my response: Make the time.
This isn't just about being ready for a sale. It's about being a better CEO:
- Understanding your shareholders makes you more effective
- Educating your board builds trust
- Building banker relationships gives you market intelligence
- Having a plan gives you confidence
Your Next Steps
- Schedule time this week to answer those shareholder questions
- Put "M&A Update" on your next board agenda
- Reach out to an investment banker for an informal chat
- Start building your relationship network
Don't wait until you need these relationships and insights. By then, it's too late to do it right.
Remember: The best time to prepare for a potential sale isn't when you're ready to sell – it's now.
Want to dive deeper into any of these areas? Let's continue the conversation.
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 on a timeline of their own choosing – 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.
