Community Bank CEO’s: Why is it good to have an exit strategy?
Every day as a bank CEO, you struggle to balance plates on sticks.
Competitive threats, talent management, management succession, asset quality, liquidity, cybersecurity threats, interest rates, regulatory compliance, regulatory overreach, capital planning, along with customer and shareholder happiness are just a few of the plates on those sticks.
You work feverishly to keep the plates spinning and balanced, so they don’t fall.
In addition, you are continually scanning the horizon, keeping an eye out for potential strategic opportunities.
Whether that’s growing organically, acquiring, merging with a comparable sized bank, or selling outright, maximizing shareholder value is your primary obligation to the shareholders.
I believe that you will gain a clearer perspective of your strategic options by preparing as if you are selling, even if you have no plans to sell.
Why do I say that?
Selling your bank can make you feel like you're standing naked in public.
The goal is to have your bank in the best shape possible, “swimsuit-ready” so to speak, at all times.
By going through the process, you will also know when your bank is not ready, and what it takes to get it ready. You will be able to quiet the “noise” which will calm your mind and allow you to concentrate on the correct plan.
The three biggest questions a CEO has when selling are:
- What is our value?
- Who is interested in buying us?
- What is the process?
Understanding the process puts you in a better position to make decisions.
It will serve as an aid for communicating your thoughts.
Your strategy for allocating capital will improve.
Fear of the unknown will go away.
You will maximize shareholder value.
So how do I know this and how do I back up these assertions?
For four decades, I was a banker, mostly a commercial banker focusing on working capital lines of credit, term loans, owner-occupied real estate, and cash management services.
For ten of those years, I was trained in and worked in capital markets and corporate finance.
In 2005, I was able to successfully organize and lead a group of local businesspeople to raise the capital for a bank we founded.
Banking and business ownership has been my life.
My capital markets/corporate finance experience also allowed me to see the common problems most business owners faced when it came time to sell their company.
They lacked access to information and guidance, therefore missing opportunities to prepare their company for sale and increase value for shareholders.
In most cases, this preparation could have been started years earlier.
That lack of preparation usually results in finding only a single buyer and having no room to negotiate.
It means leaving the worth of your bank and your story to chance.
We prepared.
In late 2021 into 2022, we went through the sale process.
We had a very successful sale process.
The sale was good for everyone involved.
The acquirer doubled their Kansas City loan portfolio, gaining a larger foothold in a faster-growth metro market (my words, not theirs) and added to their already strong presence throughout the rest of the state.
Our shareholders received a return on their original investment that exceeded the S&P 500 over the duration of the investment.
Our customers benefited from increased borrowing capacity and a wider range of products and services, and our employees have a much larger platform on which to continue their career growth.
The buyer had over ten times the number of employees we had in 30 locations, offering our employees an opportunity to specialize in various areas of the bank.
I am not an investment banker, an accountant, or a lawyer, and I encourage you to always seek competent advice from professionals who know your situation.
I am proud to say that I am a banker who has been in your shoes.
I have tremendous respect for the profession and would like to give back by sharing what I've learned.
I wrote a book about the process that will save you money, effort, and time.
There are four decades of experience, involving a lot of late nights and weekends consuming information and putting it to the real-world test.
Use the knowledge provided in the book to put your mind at ease.
You will be in a much stronger position to express your ideas to the board, your team, and the shareholders after you shift your perspective on the available options.
It will be easier to make decisions and convey your thoughts.
Your strategy for allocating capital will improve.
Fear of the unknown will be erased.
By starting today, whether you intend to sell your bank or not, you will gain peace of mind knowing you put the bank on the right path towards meeting your fiduciary obligations.
Build a bank you can own forever or sell tomorrow.
You will also leave a long-lasting legacy of your career.
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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