Getting Ready for the Date

I remember when my daughter went to her first Homecoming dance.  She slaved over her choices when it came to the dress, shoes, and jewelry, and researched hairstyles, make-up, nail polish – you name it as she did everything possible to get ready for the big event.

Her date on the other hand rolled home from a pick-up game of basketball, showered, figured out what to wear, and strolled out the door with a corsage his mom had picked out for him to give my daughter.

So if you’re a bank looking to be acquired, which approach are you taking?  Are you rolling into negotiations without careful preparation on how your bank is perceived and valued in the market?  Or are you dressing your institution up for prospective dates – putting your best foot forward?  If you put aside the preparation work you do for your financials, here are a few additional items we’ve learned from experts in the M&A world to help your institution get ready for the date.

Know Your Customer  According to Adam Fiedor, Director at KPMG Corporate Finance LLC, “Banks that really know their customers and study customer segmentation are better positioned to develop strategies that help their franchises grow profitably.  By understanding who their customer is, management can develop growth strategies for core customers, reduce costs for less profitable customers, and ultimately increase earnings and shareholder value, making them a more attractive acquisition target.”   

Bankers who have acquired other banks agree that documented knowledge of customer duration and their service and product mix is valuable.  Segment and profile your customers, for example, by their mix of products and services, as a way to help a prospective buyer understand and estimate stability and profitability moving forward.

Those who can profile their customers and leverage a CRM system will also help potential buyers match their product line and sales opportunities, and help in negotiations for additional price considerations.

According to Kevin Ahern, President & CEO of CIC Bancshares, “All buyers define their risks and set their pricing based on a series of knowns and unknowns.  Fewer unknowns mean less perceived risk so the more data you can provide to the potential buyer the closer to full value you can expect to get.”

Know Your Brand and What Makes You Unique  If you don’t want to be seen and priced as a commodity you have to be able to articulate what makes you special – and how that helps create value in your markets.  Do you specialize in attracting and satisfying certain lucrative and growing customer segments?  Will these segments complement the segments of a potential acquirer?  If your employees can only say your bank is friendly and local then you are a commodity and will be priced as such.  Build, train and repeat your key messaging at every point of contact and fight the commodity label.  It will pay off.

We’ve heard from a few sources that most buyers will ask other bankers and business owners in a market about a bank they are thinking of acquiring.  Do you know what they will say – and is it consistent with what you say about yourself?

Even better, can you show your prospective dance partner the results of any studies that show how you are perceived in your markets?  Are you a well-respected community supporter, or a well-kept secret?  What will a prospective buyer need to understand as they work through the integration process if the deal goes through?  It is one thing to say how you’re known, another to show evidence that supports these assertions.

Know Your Competition – why do they attract customers?  Be able to articulate what your competition is known for and what makes them special in the market.  And be prepared to position your bank in light of their strengths and weaknesses.  You may be competing for the same buyer so be prepared to position yourself with your best key messages against each one of your competitors.

Know what you need to do to grow, and how that plan will accelerate growth post-merger.

Is your market growing in the right population segments – the folks you can attract and satisfy?  It’s usually easier to grow your customer base if the market is growing than having to steal from your competition, and buyers pay a premium for growth markets. After all, Christian Otteson of Bieging Shapiro & Barber LLP states “buyers are looking for a sustainable earnings stream and will define your potential strengths and weaknesses as part of their due diligence.  A seller must be able to share their growth strategy and how they will fortify their market strengths and mitigate any weaknesses after the merger is complete.”

In fact, one banker we spoke to believes there’s a big benefit to continuing to advertise and be aggressive in your marketing before and during the sale negotiations.  This sends the message to a potential buyer that you are serious about growing and will continue to do so, with or without the deal closing.

Know who Your Customers are Loyal to – their banker, who may leave, or your bank?   What are you doing – really – to create loyalty to your institution, especially from your commercial customers with lucrative loans?  Are your cross sell efforts successful enough to create stickiness in your customer relationships?

Buyers consider the retention of key producers critical in a pricing decision.  The attitudes of these producers and the whole management team are also important – are they on board with the sale or will they resist and ultimately create problems as you move forward?  Do you have a retention plan in place for your top producing lenders?  Potential buyers like to see that you have a plan, and are executing it, to keep your customers and top leadership happy.

At the end of the day, a banker who knows the answers to these questions will be seen as a smarter business leader – a smarter banker.  Is that you?

In case you were wondering, my daughter and her boyfriend broke up a short time after Homecoming.  Not sure it was about how he prepared for the big date – but we’ll never know.

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