Think Like a Buyer: How to Reverse Engineer Your Way to Your Hidden Value
What if I told you that thinking like a buyer is the key to getting the best price for your bank?
Here's a powerful exercise that changed how we saw our own bank's value:
Reverse engineering the perfect acquisition.
The Magic Wand Exercise
Imagine you have a magic wand that lets you buy any bank you want – one that perfectly fills in your bank's weak spots and builds on its strengths.
What would that perfect partner bank look like?
Ask yourself:
- Which markets would it serve?
- What mix of deposits would it have?
- What kinds of loans would be in its portfolio?
- What special services would it offer?
- What talented people would join your team?
- How would its leadership succession plan help yours?
- What technology would it bring?
- What treasury management services would it have?
- What expertise would its board members add?
Take your time with this exercise.
Don't worry about cost – your magic wand can create the perfect match.
The Big Shift in Thinking
You might be wondering:
"What does imagining buying a bank have to do with selling mine?"
Everything.
When you figure out what would perfectly complement your bank, you're also discovering what kind of buyer would find your bank most valuable.
Our Real Experience
Before we sold our bank, we were actively looking to buy other banks.
We built detailed models analyzing potential targets, creating a top ten list of ideal matches.
This process made us look at our own bank with fresh eyes:
- We saw that our loan-to-deposit ratio was always over 100%
- We had borrowed $40 million from the Federal Home Loan Bank
- Our bond portfolio had $60 million in unrealized losses
- As a newer bank, our deposit base wasn't very diverse
We needed a partner with a low loan-to-deposit ratio and diverse deposits built over many years.
But we looked beyond just finances:
Geographic Reach - I actually drove seven hours to a market we were considering and realized it was too far. If problems came up, oversight would be too difficult.
Market Demographics - We operated in a growing city area. Potential targets were usually in rural markets where deposits were plentiful, but growth was limited as younger people moved to cities.
Management Depth - Many rural banks had succession problems. Our management team's average age was 45 compared to the industry average of 65 – we had purposely developed young talent starting 13 years before our eventual sale.
Technology Skills - Our team had strong IT expertise, which many rural banks typically outsourced.
The Win-Win Partnership
We imagined a partnership where we could use rural deposits in our higher-growth city market while offering management succession and technology expertise. The ideal match would make both banks stronger – where 2 + 2 equals 5.
The Surprising Result
What we learned proved prophetic.
We were ultimately bought by a bank about six times our size that matched our "ideal partner" profile in reverse.
They mainly operated in rural markets, had strong deposits, maintained a lower loan-to-deposit ratio, and wanted growth in city markets to increase their overall value.
By understanding what we wanted in acquisitions, we gained clarity about our own value to potential buyers.
Your Strategic Insights
This reverse engineering approach gives you critical insights:
- Self-Knowledge - Understanding your strengths and weaknesses from a buyer's view
- Market Position - Identifying where you fit in the acquisition landscape
- Value Enhancement - Recognizing which parts of your operation deliver the most value
- Strategic Planning - Focusing improvement efforts on areas that maximize attractiveness
- Negotiating Power - Clearly explaining your unique value with evidence
Taking Action
Set aside quiet time this week to work through this exercise:
- Define your perfect complementary acquisition in detail
- List your bank's current strengths and weaknesses
- Identify banks that match your "ideal complement" profile
- Consider how those same banks might view your bank
- Develop strategies to enhance your complementary value
Remember:
The most successful bank sales happen when buyer and seller each bring something the other needs.
Understanding this complementary value is the foundation of maximum value.
What would your magic wand bank look like?
The answer reveals more about your own bank's value than you might realize.
There are no shortcuts or hacks in building the confidence needed for major strategic decisions.
Just proven approaches centered around preparation:
This approach will:
- Inform your strategic planning
- Guide your resource allocation
- Clarify your priorities
- Define your value proposition
This is how savvy bank leaders operate. They build valuable institutions through preparation, allowing them to choose the optimal path forward on their own timeline – whether that's continued independence or a strategic transaction.
What's your next step toward building that stable confidence?
I’ll see you next week.
