Bank Mergers: How does a successful “deal team” and data room work?
We had a small but highly effective board of five people.
This is provided for perspective.
There is no right or wrong answer for the size of your board.
Ours happened to be the minimum size allowed by state statute (we were a state-chartered bank).
We felt that size was more efficient for us.
We had three outside board members and two inside board members, including myself as chairman and CEO, along with our president. As a relatively young bank (16 years old), both of us wore multiple hats until the bank was sold.
As inside board members, we possessed more day-to-day knowledge across all aspects of the bank than a longer-established institution typically would within a more traditional ‘silo’ structure.
The side benefit of that was that we would keep our “deal team” limited in size.
As more of the management team was hired and developed, the number of hats the two of us were wearing decreased. Despite handing over those duties, we still maintained a very good understanding of what was happening throughout the bank.
Due to the highly sensitive nature of the project, the deal team comprises only those individuals who are essential to the process. Additional team members are added on an as-needed basis.
Only our board had knowledge of the project.
My point in bringing this up is that the makeup of your “deal team” will depend upon your individual circumstances.
You may need to include your chief credit officer earlier in the process.
You may need to include your lead IT person earlier in the process.
Or you may need to include your human resources lead in the process.
Your situation will be unique to you and your depth of understanding the details of your bank.
Our president could answer most, if not all, questions about our individual commercial customer relationships as well as our overall loan portfolio credit quality down to each specific borrower. Therefore, we didn’t need to bring our chief commercial officer or our chief credit officer into the mix, or “under the tent” as it is often referred to.
We brought in our chief financial officer to go deeper into our financials.
You never really know how a meeting about bringing somebody “under the tent” will go until you have it. But we had done some things prior to this that hopefully would mitigate the risk associated with that conversation.
Primarily, it was a general understanding amongst the management team that this was a business.
We emphasized that we were building shareholder value.
We emphasized the differences in stakeholder value and shareholder value.
We also emphasized that capital follows value, and we were developing a competent and skilled team.
The team was managing a project, that project happened to be a bank.
Generally, the fear of bringing any employee under the tent is that word will get out and the value of the bank will go down.
Employees may seek employment elsewhere or customers may come under even greater competitive pressure to leave.
Additionally, your fear is that an employee will lose focus and engagement.
This is another reason why the Change-In-Control agreements with your key people are so valuable to the bank and its shareholders.
Your key people have a great deal to benefit from a change-in-control agreement. The agreement can serve to heighten engagement and confidentiality.
The Stay-Put feature also ensures they have a cooperative stance with the buyers in the long run rather than taking on an “us versus them” posture.
Although the Change-In-Control agreements have confidentiality clauses, having an Insider Agreement (see The Savvy Banker Newsletter 031, for more on Insider Agreements) signed as an added emphasis is also a great reminder.
Being able to say that each board member has signed an Insider Agreement goes a long way to affirm buy-in.
I am not a lawyer, so it is strongly recommended that you seek legal counsel on your Insider Agreement.
So, if you’re keeping count, at this point we had three insiders (chairman and CEO, president, and chief financial officer) as our deal team.
We will now need to begin the process of fulfilling the data request from the investment bankers.
Investment bankers electronically gather and review your bank’s information, addressing any resulting questions with you. They populate the virtual data room, which becomes accessible to potential parties throughout the process.
The data room serves as a crucial information hub from start through closing. Investment bankers manage credentials, collect non-disclosure agreements, and revoke access for banks no longer under consideration.
This service is another major reason why using an investment banker is so valuable to the project.
You have a bank to run, and that means your people’s time is incredibly valuable. Having a team behind you that can handle this is critical on many fronts.
Our initial Deal Team was expanded later in the process. This will be covered in a future newsletter, but for now the team is still very limited.
Action plan:
- Think through who would need to be on your “Deal Team” if you had to go through this exercise tomorrow.
- How comfortable would you feel bringing them into the “Deal Team”?
- Do you currently have any employment agreements or Change-In-Control agreements in place with each of the members you would consider adding?
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 they can own forever or sell tomorrow – 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.
Categories
All Categories a bank ceo's step-by-step guide account management accountability acknowledgment acquisition costs acquisition planning acquisition readiness acquisition risk acquisition strategy acquisition success acquisition target acquisition targeting advisory board annual business planning annual meeting annual meeting strategy annual meetings asset size assumption examination auction process authority transition balance sheet management balance sheet optimization balancing act bank acquisition bank capacity bank ceo bank ceos bank culture bank directors bank examination cycle bank exit planning bank exit strategy bank financials bank leadership bank m&a bank m&a strategy bank management bank merger bank mergers bank multiples bank operations bank performance bank profitability bank sale negotiation bank sale preparation bank sale process bank sale strategy bank scale bank shareholder value bank story bank strategy bank succession planning bank valuation bank valuations bank value banking banking culture banking economics banking leadership banking relationships banking scale baseball analogy behavioral incentives benefits communication board alignment board and shareholder alignment board approval board culture board decision making board documentation board dynamics board education board effectiveness board expertise board governance board management board meeting board meetings board members board of directors board preparation board recognition board recommendation board relations board relationships bond portfolio management bonus structure book vale dilution borrower relationships brand inventory brand transition business continuity business development business model evaluation business preparation business psychology buyer evaluation buyer identification buyer interest buyer meetings buyer outreach buyer perspective buyer pool development buyer presentation buyer questions buyer relations buyer relationships buyer research buyer screening buyer types buyer's perspective buyer-ready bylaws review calling blitz capacity assessment capital allocation capital constraints capital flexibility capital management capital planning capital policy capital strategy career advancement career development career pathing career reflection career transition cash vs stock cash vs stock offers ceo disengagement ceo leadership ceo mindset ceo preparation ceo role ceo transition certainty of closing certificate surrender change management change-in-control agreements client briefings closing checklist closing day commecial lending commercial lending commmunity banking communication strategy communication systems community bank community bank ceo community bank merger community bank strategy community banking community bankng comparable transactions compensation design competitive advantage competitive analysis competitive bias competitive bidding competitive intelligence competitive positioning competitive response competitive threats competitor analysis competitve recruiting complementary acquisition confidential information memorandum confidential process confidentiality confidentiality agreements confidentiality management confidentiality protection consensus building consistent performance constraint accepted continuity planning contract management contract negotiation contract obligations contract terms control assessment control dynamics core earnings core processing core processing contract core system migration corporate administration corporate communications corporate culture corporate documents corporate governance cost structure analysis cost synergies covid impact credit concentration credit culture credit demand credit policy credit quality credit trends credit union acquisitions culteral consistency cultural assessment cultural compatibility cultural fit cultural fit concerns cultural keeper cultural knowledge cultural sensitivity cultural transition cultutral fit customer anxiety customer communication customer dependency customer diversification customer experience customer influence customer information customer loyalty customer relationships customer retention customer satisfaction customer service customer trust customers d&o insurnace data management data room management deal announcement deal closing deal comparison deal completion deal confidentiality deal control deal evaluation deal execution deal fatigue deal lawyers deal leverage deal management deal positioning deal process deal protection deal risk deal structure deal structuring deal team deal terms deal timeline deal-killers decision authority decision concentration decision framework decision gravity decision making decision posture decision quality decision-making independence decision-making process deconversion costs definitive agreement delegation delegation skills deliberate decisions deposit behavior deposit diversification deposit growth deposit mix desposit stability diagnostic framework digital transformation director engagement director influence director liability discounted cash flow discretion management diversification dividend policy dividend strategy document management due diligence due diligence preparation duty of care duty of loyalty early termination fees earnings durability earnings impact earnings quality earnings sustainability efficiency ratio electronic delivery embedded potential emotional intelligence emotional preparation employee appreciation employee benefits employee communication employee development employee engagement employee management employee morale employee motivation employee protection employee respect employee retention employee transformation employer branding engagement strategy environmental inspections equity investment executive compensation executive engagement executive leadership executive transition exit planning exit planning for banks exit stages exit strategy expense management experience dependency face-to-face meetings fairness opinion familiar patterns family-owned banks faq development fdic data federal home loan bank fee generation fee income growth fee income oppotunities fee income streams fee structure fiduciary duty fiduciary responsibility final negotiations financial anaiysis financial analysis financial performance financial planning financial projections financial reporting first impressions formal deliberation forward-thinking leadership fragile performance franchise value funding costs future acquirers future leaders future planning future potential general counsel generational shifts generational workforce geographic expansion geographic footprint golden window good faith governance clarity governance effectiveness governance structure gratitude perspective growth narrative growth opportunities growth paths growth potential growth strategy growth targets growth trajectory growth vs. discipline herd mentality hidden value how to sell a bank how to sell your bank human resources implicit understanding incentive structure incentive structures independence independent directors independent thinking individual dependency inflection points informal process informal standards information control information leaks information security inherited assumptions initial offers insider agreements insitutional control institutional authority institutional balance institutional command institutional control institutional direction institutional durability institutional dynamics institutional fragility institutional hygiene institutional knowledge institutional preparedness institutional priorities institutional resilience institutional reslience institutional strength institutional structure institutional weight integration planning integration timeline interview techniques intrinsic value investment banker role investment banker selection investment bankers investment banking ipo (initial public offering) irs 280-g rules key employees key personnel knowledge management knowledge portability knowledge transfer kurt knutson leadership alignment leadership assessment leadership bench leadership centralization leadership change leadership communication leadership confidence leadership dependency leadership depth leadership development leadership distribution leadership grace leadership gratitude leadership independence leadership legacy leadership philosophy leadership pipeline leadership strategy leadership styles leadership transition leadership transitioon legacy brand legacy building legal agreements legal counsel legal documentation legal expertise legal fees legal representation legal responsibilities lending limits letter of intent letter of intent (loi) letter of transmittal leverage leverage building leverage matrix lifecycle management liquidity event loan growth loan participations loan portfolio loan portfolio management loan-to-deposit ratio long-term planning long-term resilience long-term value m&a (mergers & acquisitions) m&a process m&a readiness m&a strategy management assessment management depth management development management independence management meetings management philosophy management succession management team margin management market competition market conditions market cycles market demographics market differentiation market education market intelligence market opportunity market position market positioning market research market specialists market strategy market testing market timing market valuation market value material adverse change maximizing deal value media relations meeting follow-up meeting preparation meeting strategy meeting structure mental health mental hurdles mental preparation merger agreement merger agreements merger consideration merger economics merger integration merger mindset merger of equals mergers & acquisitions (m&a) message coordination midyear review milestone recognition minimum price multi-genrational banks multiple approach valuation negotiating leverage negotiation leverage negotiation preparation negotiation strategy net present value neutral advisory next chapter planning niche strategy non-binding offers non-compete agreements non-core earnings non-disclosure agreements objective analysis ocassional acquirers offer analysis offer comparision offer evaluation one-buyer approach one-on-one meetings operating independence operational assistance operational consistency operational constraints operational decisions operational efficiency operational flexibility operational independence opportunity assessment optionality organizational architecture organizational behavior organizational change organizational clarity organizational culture organizational development organizational drift organizational excellence organizational flexibility organizational inertia organizational memory organizational resilience ownership concentration ownership structure past vs. future focus pattern recognition paying agent payment processing per-share value performance assessment performance managemnt performance metrics performance optimization perfromance continuity perfromance metrics personal fulfillment personal growth physical signage planning cycle planning discipline planning preparation policy development policy interpretation portfolio analysis portfolio diversification portfolio management position assessment position before pressure post-announcement period post-closing celebration post-closing integration post-closing period post-closing process post-closing strategy post-loi management post-merger integration post-sale planning post-sale role power dynamics power shift pre-emptive strategy pre-meeting alignment premium buyers presentation skills press release price negotiation price-to-book multiples priority communication private decision-making proactive planning process control process documentation process formalization process management process transparency professional communication professional development professional growth professional guidance professional identity professional leadership professional presentation professional representation professional reputation professional responsibility proxy materials psychological traps public communication reactive strategy readiness assessment real estate surveys recruitment strategy recurring revenue regulatory approval regulatory burden regulatory compliance relational gravity relationship banking relationship buiding relationship building relationship management relationship risk relationship weight reputation risk resource management responsibility shift retention strategy return on assets (roa) return on investment revenue producers reverse engineering reward systems risk absorption risk assessment risk management risk mitigation risk tolerance roi analysis role adjustment role profiling role profilinig role transition rural banking sale preparation sale strategy sale timing sale-ready sales process sales strategy savvy banker strategies scalable oprations scale advantage scarcity mindset sell your bank sell-side advisory seller psychology seller types seller's mindset selling on your terms selling your bank senior leadership serial acquirers share conversion shareholder alignment shareholder analysis shareholder approval shareholder communication shareholder data shareholder expectations shareholder legacy shareholder meeting shareholder payment shareholder protection shareholder records shareholder relations shareholder return shareholder returns shareholder rights shareholder value shareholders short-term performance silent running perios (pre loi) social media management sop development special meeting stakeholder management stay-put agreements stock certificates stock transfer agent strategic alignment strategic alternatives strategic architecture strategic asset strategic clarity strategic command strategic communications strategic control strategic decision making strategic direction strategic distance strategic erosion strategic fit strategic fit analysis strategic flexibility strategic framework strategic governance strategic growth strategic hiring strategic isolation strategic leadership strategic leverage strategic maneuvering strategic optionality strategic options strategic partnerships strategic perspective strategic planners strategic planning strategic position strategic positioning strategic process strategic research strategic stewardship strategic thinking strategic timing strategic value strategic value creation strategic vision strategic vulnerability strategic window stress management structural clarity structural deficit structural durability structural fragility structural messaging structural readiness structural resilience structural reslience structural strength succession planning succession strategy surplus mindset sustainable growth system conversion system thinking systems and processes systems architecture systems discipline systems thinking tacit knowledge talent acquisition talent assessment talent development talent identification talent management talent protection talent retention talent scarcity talent succession planning tanible book value (tbv) team autonomy team building team confidence team continuity team independence team preparation team recognition technology capabilities technology integration tempo management the art of selling your bank third-party contracts three-step plan time management timeline planning track record training development transaction analysis transaction approval transaction attorneys transaction complettion transaction conditions transaction costs transaction execution transaction management transaction process transaction security transaction timeline transaction timing transferability transition management transition risk treasury management unique value proposition urban banking valuation methodology valuation methods valuations value assessment value creation value drivers value enhancement value equation value maximization value optimization value proposition value-based strategy variation absorption vendor management virtual data room voting process voting rights wealth management websire migration weekly reporting work-life balance workforce planning written offers