Community Bank CEOs: What bank seller bucket calms your nerves?
When you bring serious people to the table, you are signaling to your potential buyer pool,
“We are serious.”
Your advisor team, your investment banker, your lawyer, and your accountant.
These are the serious people you are bringing to the table.
When you’re thinking about the lifespan of the bank, to use a baseball game as a metaphor, the best time to sell is in the fifth or sixth inning.
At that point in the game, you have scored a bunch of runs and are enjoying a comfortable lead.
You have the heart of the lineup coming up.
Your ace reliever is warming up in the bullpen.
You’re projecting a win in fact you have been on a winning streak and the future looks bright.
This is what buyers are looking for.
A bright future, with future cash flows projecting well.
When you’re starting to slow down, your growth rate is starting to slow, you’re not going to get the same valuations.
If you start losing money or the competition is starting to step on you, it’s more difficult to sell, and certainly the valuation comes down.
Sellers generally fall into one of three buckets or some combination of the buckets.
The first bucket is called “Inbound Interest” and is made up of sellers who contact investment bankers well in advance of a sale.
They are getting smart about mergers & acquisitions (M&A) before they’re thrown into the deep end of the pool.
The second bucket is called the “Turning Point” and is made up of sellers who have reached some point of inflection.
They have done a calculation.
They see an impending industry downturn on the horizon, or a major investment that will dampen earnings for a few years, and they don’t want to go through a drop in value and several years of risk before returning to the valuation they already have today.
The third bucket is called “Succession” and is made up of seeing retirement on the horizon or a partner with a health issue, they don’t want to go through the process of:
- Finding
- Recruiting
- Hiring
- Developing
- Retaining
the talent needed for their replacement.
In this example, perhaps one or two key people have really been running the bank – making all the important decisions along the way.
They have gotten comfortable.
Everything feels like it is on autopilot.
Now, one of them has a major health issue and the other is looking at the daunting task of realizing this illness may interfere with his or her own exit of the business and therefore wants to sell to transfer the duty of bringing new talent up to speed to the buyer.
For those who may be thinking, “I don’t want to scare somebody away by involving an investment banker right out of the gate,” I can promise you that a serious buyer would love to see somebody involved who understands the M&A process.
Knowing that your value may go up a bit by using an investment banker is a trade-off they will gladly take because a serious investment banker increases the percentages that the deal will get done.
So, to them, success is about cutting friction and mitigating risk throughout the process. This maximizes the probability of making the acquisition succeed in the long term, instead of saving a couple of bucks on the front end.
The right investment banker immediately introduces to the buyer on one phone call that the seller is serious about selling and the investment banker can create competition for this opportunity.
The buyer knows that if the call doesn’t go well, the investment banker has a list of potentially interested parties to call next.
This is a critical point because with an investment banker, you take control of the process; without an investment banker representing you, the buyer has control.
This all helps you maximize value and keep everything on a timeline.
Time represents risk, and as bankers, we know that very well – our business is based upon it.
So, here’s action plan for today’s newsletter:
- Which seller bucket(s) do you fit into and why?
- Is your bank projecting a bright future?
- Why? or
- Why not?
- What can be done in the time you have before selling to project a bright future?
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.
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