A winning mergers and acquisitions strategy for banks

Since the start of the global financial crisis, banks have been merging and acquiring one another at an unprecedented rate, and this trend appears set to continue through 2022.

What’s behind all of these transactions? For most banks, it’s a combination of three factors: lower relative costs due to scale, reduced risk due to diversification, and, increasingly, increased investment in technology.

Non-traditional players, such as banks and wealth management firms, are now regularly involved in mergers and acquisitions. One way old-line businesses can protect themselves from the threat of new competitors is to bring disruptive capabilities in-house..

b1BANK, the community bank I am proud to lead, has participated in this broader trend by acquiring four full-bank acquisitions and a wealth management firm, Smith Shellnut Wilson, over the past few years. We recently announced our intention to buy Texas Citizens Bank, a Houston-based financial institution; the deal is expected to close in the first quarter of 2022, according to our current plans.

Each of these mergers has been a great success for us, and I wouldn’t hesitate to do any of them again if given the chance. Even so, these opportunities have not come without difficulty and we’ve noticed a few common threads as we’ve worked our way through them.

Your people’s strength

When I first started out in banking, I had the impression that everything was based on numbers. Actually, it’s all about people, which means it’s all about personalities, biases, and the competing (and sometimes conflicting) desires that go along with each of those. All of them are CEOs!

Clients, board members, employees at various levels, regulators, analysts, and shareholders are just some of the groups that banks serve. When you think about how difficult it is to bring together two different groups of people with different viewpoints, it becomes clear how much more difficult it is to deal with people issues.

It’s a wonderful opportunity to help people grow beyond their and your expectations if you can navigate the intangible complexities of M&A successfully. Having partnered with us, many employees in the banks we’ve acquired are now excelling in jobs they never thought they’d take on. Our current employees have had numerous chances to grow professionally as a result of mergers and acquisitions.

M&A done correctly creates a team of people who are more than capable, just as exercising outside of the routine builds muscle.

The deal must be kept in mind, not the deals themselves

We don’t consider ourselves a rollup, despite the fact that we’ve done a lot of deals for a bank our age. Investing in organic growth capability to better serve our clients, primarily small and medium-sized businesses and the people who work for them, is still at the forefront of our minds. M&A is used to enhance our strategy, rather than to implement it.

This perspective yields a number of important outcomes. First and foremost, we’ve earned the right to avoid transactions because we’ve invested successfully in organic growth. As a result, a lot of companies that had staked their growth plans on acquisitions now find themselves on a precipice, forced to choose between continuing to grow or making less attractive acquisitions.

Deals that are done for the sake of doing them, or worse, bad deals, are less likely to be done if we can avoid having to make a deal.

A deal must be worth the effort if we’re going to make one. The bar for allocating our resources should be raised because we have other options. It’s not enough to assume that multiple acquisitions will all benefit our company in the long run, but each deal should be evaluated on its own merits.

Maintaining a high standard increases the likelihood of a successful conclusion to every transaction.

Don’t just say you’ll do something, do it

No matter how well-priced or strategic a deal is, if it isn’t fully integrated, it doesn’t matter.

While we are putting together the deal framework, we begin thinking about our social integration. We do everything we can to be ready to meet our soon-to-be-new colleagues as soon as the announcement has been made public and before the closing process has begun.

The importance of technological integration cannot be overstated. Many other software platforms, including the core systems, are involved.

In order to ensure that we are meeting our promises, we monitor our projected cost savings closely. Many things can go wrong, but if your assumptions are conservative, you still have a chance of succeeding.

There may be times when your resolve is put to the test. A 20-plus-year-old company in south Louisiana, Pedestal Bank represented 60 percent of our total assets during our most difficult merger. After the deal was announced in January 2020, we received a lot of positive feedback from the Louisiana community banking community.

Covid-19 was raging, oil prices had plummeted, and our stock had lost 30% of its value the day of the announcement by the time our shareholder meeting took place in April.

We could either go forward or leave. We made the decision to go ahead with the project as planned. Three things were all that were needed to move forward.

  1. We didn’t have any concerns about the cultural fit. Having worked with them before, I was confident in their abilities as bankers.
  2. Even if we didn’t complete the deal, the benefits we had hoped to reap from it remained substantial. This was a big deal.
  3. While we knew the integration would be challenging, we were confident that we would emerge stronger than ever.

Many of life’s most difficult tasks are the best ones when they have been completed. After completing this merger two years ago, I can confidently say that this merger proved the rule.

When it comes to mergers and acquisitions (M&A), things aren’t as glamorous or simple as they first appear. It can, however, be a powerful accelerator for companies striving to reach their full potential if done correctly, with an emphasis on people, strategic fit, and follow-through.

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