There Are No Touchdowns in Bank M&A
If you hang around bank mergers and acquisitions (M&A) long enough, you’ll likely hear a phrase like “Let’s get this transaction across the goal line.” This implies the transaction itself is where the big points are scored—akin to scoring a touchdown in football. While completing an outstanding transaction is a big accomplishment and deserves celebrating, closing on a bank transaction is only the beginning. Most of the biggest opportunities and critical challenges in bank M&A come after the transaction.
BKD Capital Advisors recently advised on the sale of a community bank that had significant, well-priced public deposits. The buyer completed detailed due diligence on the deposits and was comfortable with them going into closing. Not long after the transaction was completed, the buyer called us to discuss other matters and noted that most of the public funds had unexpectedly moved out of the recently acquired bank. This wasn’t the expected outcome, and we were concerned about the challenges this might present. The buyer assured us that while it hadn’t been pleasant, the loss of the inexpensive public funds had been more than offset by the integration plan they executed on. In the short time they had owned the bank, they saw improvement in the bank’s key performance indicators (KPI) and had almost doubled profitability. Overall, they were thrilled with the acquisition—due in large part to the outcome of integration planning and execution.
Here are a few keys to integration planning and execution:
Focus on the most predictable wins – While most of the consolidation done in community banking doesn’t come with deep cuts to personnel at the target bank, buyers should still look for every other opportunity to implement a strategic and robust cost takeout plan. Advantageous tax structuring, branch consolidation, department streamlining, technology implementation, KPI monitoring, contract renegotiation and divestiture of nonessential or underperforming assets or business lines are all critical integration plan components. Implemented strategically, these efforts pay reasonably predictable dividends and build capacity within the combined bank to handle other unforeseen challenges.
Fortune sides with the fast – Set aggressive time frames for the integration plan. Early successes compound over time, and the longer strategies take to implement, the more difficult they are to ultimately achieve. Achieving aggressive integration timelines requires both the buyer’s board and management team to be hyperfocused on the integration plan, take acceptable levels of risk and make quick decisions. Moving quickly to capture the potential of the bank acquisition helps keep integration opportunities from getting left behind as other challenges arise within the combined institution.
Leading up to the closing, buyers should work closely with their team and advisors to identify opportunities, mitigate risks and structure the deal advantageously. While getting a transaction across the “goal line” feels like a win, the game is far from finished for the buyer. They’ve now acquired an opportunity to implement their integration plan. An outstanding integration plan, executed with speed and precision, is where most of the “points” are scored in community bank M&A.
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