From mixing differing values to picking a brand new chairman, there are numerous challenges that may come up after a merger or acquisition. We spoke with authorized and monetary specialists about what questions group financial institution leaders ought to ask themselves pre-merger, what points they might face and the way they will construct a fair stronger monetary establishment.
By Bridget McCrea
Combining two banks into one is a posh enterprise. Between the due diligence, monetary negotiations, know-how integrations and the unification of two established operations—be it through acquisition or merger—the method could be dangerous and difficult. There could also be substantial rewards on the different finish, however that doesn’t essentially make the journey any simpler.
As each side of the desk work out the small print, post-merger board succession planning must be a key subject of dialogue. It’s a facet of the deal that shouldn’t be left till the final minute, though it typically is. “What’s going to occur to your board as soon as your banks merge can’t be an afterthought,” says Anton J. Moch, a financial institution M&A and governance legal professional at Winthrop & Weinstine, P.A., in Minneapolis.
“These conversations ought to happen on the very starting of any transaction, with a give attention to put the boards collectively, who will keep or depart and who would be the new chairman of the board,” he continues. “You may’t wait till you’re signing a purchase order settlement—or worse, till you’re closing on a deal—to determine the way you’re going to work with two disparate boards.”
That is essential, as a result of banks with sturdy boards are usually properly positioned of their marketplaces, perceive their buyer bases and make good choices. These with weak boards are likely to wrestle with decision-making as a consequence of disagreements both amongst board members or with government officers.
Greyson Tuck, Gerrish Smith Tuck Consultants and Attorneys
“Group banks are closely influenced by their boards of administrators,” says Greyson Tuck, president of Gerrish Smith Tuck Consultants and Attorneys in Memphis, Tenn. “The board makes choices, maintains management and produces enterprise for the financial institution. These are all essential duties for a financial institution because it goes via the merger or acquisition course of.”
Preserving the worth of the transaction
When one group financial institution acquires or merges with one other financial institution, there are numerous steps to take and issues to debate. A few of the most essential inquiries to ask are: Who’re our key gamers? What are their relationships to the financial institution? How can we greatest protect the worth of these relationships?
“Finally, that’s the place the worth lies within the acquisition course of,” says Tuck. “It’s concerning the extent to which you’ll protect the relationships. This, in flip, preserves the worth of the transaction.”
Submit-merger board succession doesn’t at all times imply choosing a handful of present administrators and making a single mixed board both. For instance, Tuck just lately labored on a deal the place the holding corporations for 2 totally different rural group banks had been involved in merging the 2 entities into one. The talks happened between the 2 holding corporations and initially centered on the long run route of the mixed financial institution, together with the succession plans for the present officers and administrators. Discussions centered round tradition and match because the banks labored to maintain as many lively board members onboard as attainable.
Then, the banks determined to arrange two boards: one centered on know-how, operations and day-to-day contact with the group, and the opposite centered on enterprise planning and technique. Whereas there was some overlap throughout the 2 boards, the financial institution labored to determine people who can be greatest suited to every particular group. Tuck says this “introduced a brand new focus for these two organizations as they put the boards collectively.
“Finally, it ended up figuring out fairly properly for them due to these very early discussions that happened earlier than deal pricing and future plans had been even mentioned,” he says, advising an analogous, proactive strategy to board succession planning for any group financial institution that’s merging with one other establishment.
“Proper from the beginning, there was a transparent give attention to the experience and expertise of the prevailing administrators at every group. Then, numerous thought went into which people can be the most effective match for every board.”
What to do when household is concerned
On the floor, an M&A deal involving a family-owned group financial institution appears identical to every other deal. These similarities often finish when the layers are peeled again on the family-owned entity, whose company tradition isn’t at all times mirrored within the books, so to talk. For this and different causes, post-merger board succession planning for this sort of financial institution requires a particular contact. Success will rely on whether or not the brand new guard can respect the synergies between the banks’ cultures, the founding household (or households) and the communities that they serve.
One other complication is the truth that relations doubtless serve on the financial institution’s board or as the bulk board. “With most family-owned banks, 60% to 70% of the board members are relations and 20% to 30% are exterior administrators,” Tuck explains.
If these relations don’t need to surrender management to a board that’s diluted by non-family members, the challenges might mount. One strategy to resolve the problem is by making a holding firm board that has a special composition than that of the financial institution board.
For instance, on the holding firm stage there could also be six administrators, 4 of whom are relations and two of whom are exterior administrators. Then, on the financial institution stage, there will probably be 10 administrators, six of whom are relations and 4 of whom are exterior administrators. Tuck says this can be a quite common post-merger board succession state of affairs for family-owned banks.
“That offers a household consolation, as a result of finally the financial institution board members are elected and are available into their place as administrators by the consent of the holding firm,” Tuck factors out. “Notably for a family-owned financial institution, this strikes the stability of giving the household the management they need whereas permitting an acceptable variety of exterior administrators to be concerned.”
Working via differing priorities
As soon as a group financial institution has reached the purpose the place it’s determined {that a} merger with one other establishment is what’s greatest for the group, it ought to flip its consideration to the post-merger board plans. “For those who fail to do that, it’s mainly like dropping the ball on the entire work that goes into the merger planning and strategizing course of,” Moch cautions. “Your board will set your complete route for the merged group.”
[A chairman] might help information and direct the discussions to make sure that, even when there may be disagreement, as soon as a route is picked, everybody will get on board with it. A powerful chairman could make an enormous distinction in driving that ahead momentum for the board itself.
—Anton J. Moch, Winthrop & Weinstine, P.A.
With the stage set for post-merger succession planning, banks might should work via differing priorities amongst new and present board members. To successfully handle these and different conflicts, Moch tells banks to lean on the group’s mission, targets and place locally that it serves. They need to ask questions like:
- What do we wish this financial institution to be?
- How can we accomplish this?
- What are our strengths and weaknesses?
- How can our board assist us leverage these strengths and overcome the challenges?
Anton J. Moch, Winthrop & Weinstine, P.A.
“Have a transparent route even when there’s competing curiosity. That method, you’ve got one thing to return to,” Moch says. If the board itself can’t attain a consensus, he advises bringing in an outdoor mediator to work via the problems and assist set baseline enterprise methods. Invite board members to voice their opinions all through the method, he provides, however finally additionally know {that a} majority of the board must approve choices. Having a powerful chairman in place might help banks obtain that consensus.
“She or he might help information and direct the discussions to make sure that, even when there may be disagreement, as soon as a route is picked, everybody will get on board with it,” says Moch. “A powerful chairman could make an enormous distinction in driving that ahead momentum for the board itself.”
Honoring expertise and planning for the long run
Relying on how lengthy a group financial institution has been in enterprise, there could also be board members who’ve been in place for many years. They every convey their very own strengths and expertise to the board, and their longtime information of the banking business makes them worthwhile belongings for the group.
Because the banking atmosphere, know-how and buyer preferences all proceed to vary, boards also can profit from some contemporary faces who might convey totally different views, expertise and concepts to the desk.
A merger is a main time to convey new and established members right into a mixed board that honors expertise and helps the brand new entity plan for future success. A method to do that is by including folks with numerous expertise and profession paths to the brand new board, says Joshua M. Juergensen, principal, monetary establishments at CliftonLarsonAllen LLP in Minneapolis. Begin figuring out these potential board member candidates—inner and exterior—as early as attainable within the M&A course of, he advises.
Subsequent, think about sending these people to ICBA LEAD FWD Summits, ICBA LIVE and different business management occasions for additional schooling and coaching and to reap the benefits of networking alternatives. “There’s numerous worth in sending up-and-coming generations to numerous ICBA occasions,” says Juergensen, who feels that the business as a complete must do a greater job of serving to these people set profession paths and work towards management roles in group banking.
“We have to assist them see the worth of being within the banking business, as a result of with out that, we’re not going to have the ability to retain the subsequent technology of banking leaders who’re at present in class,” Juergensen says. “They should see the worth of being within the business and serving as leaders, administrators, board members and chairmen of the board.”
Communication is vital as you’re employed via the M&A course of and attempt to perceive the customer’s and vendor’s place after which attempt to synthesize these to get the very best outcome.
—Greyson Tuck, Gerrish Smith Tuck Consultants and Attorneys
Hanging the precise stability
To banks which can be working via the post-merger board succession course of or planning an M&A transaction quickly, Tuck says essentially the most profitable offers often contain some stage of give and take. Sellers need to be ok with the method itself and their banks’ futures, and patrons need to know that they’ve acquired a worthwhile asset that may succeed over time. The board performs an important position in making that occur and must be a top-of-mind consideration as a financial institution works its method via the method.
“Communication is vital as you’re employed via the M&A course of and attempt to perceive the customer’s and vendor’s place after which attempt to synthesize these to get the very best outcome,” Tuck says. “That doesn’t imply everybody will get the whole lot that they need, but it surely does imply that it’s important to strike the precise stability between the competing pursuits.”
5 suggestions for profitable post-merger succession planning
- Begin early by speaking concerning the board planning on the very first M&A gathering. Think about each inner and exterior candidates, figuring out {that a} good mixture of the 2 will assist the brand new financial institution honor legacy expertise whereas embracing the long run.
- Take early steps to determine people each out and in of the group with an eye fixed on diversification (for instance, accountants, attorneys and different professionals from the group).
- If one or each banks are family-owned, you should definitely issue within the associated cultural and management points that may floor as you place the brand new board collectively.
- In some situations two boards could also be your best option: one which handles the big-picture strategizing for the brand new financial institution and one which focuses on the day-to-day operations.
- Work to stability the lengthy tenure of established board members whereas infusing the brand new board with people who might have extra expertise with know-how, digital transformation and different fashionable necessities.
Tackling a broader succession planning concern
As Joshua M. Juergensen surveys the group banking business, he sees a broader lack of succession planning that goes past simply post-merger board planning.
“Succession planning as a complete is likely one of the greatest challenges that the group banking business has at this time,” says Juergensen, who’s principal, monetary establishments at CliftonLarsonAllen LLP in Minneapolis. “In numerous circumstances, there simply isn’t a subsequent technology that’s keen to take over the reins from the longtime, multigeneration, family-owned financial institution.”
This actuality make establishments think about promoting. This, in flip, creates the necessity for higher post-merger board succession planning. “Candidly, I feel numerous the explanations that banks enter into these merger agreements is as a result of lack of total succession planning,” Juergensen provides.
An ICBA certification committee member, Juergensen says he’s just lately seen a much bigger focus being positioned on educating the subsequent technology of financial institution leaders. He sees this as a step in the precise route however says there’s nonetheless extra work to be performed.
“It’s about ensuring that group banks are investing within the [associates] who could also be future leaders of their organizations,” he says, “and taking the steps essential to drive a profitable succession planning course of.”
Bridget McCrea is a author in Florida.