From mixing differing values to picking a brand new chairman, there are lots of challenges that may come up after a merger or acquisition. We spoke with authorized and monetary specialists about what questions neighborhood financial institution leaders ought to ask themselves pre-merger, what points they might face and the way they will construct a good 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 may 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 main points, post-merger board succession planning ought to be a key matter of dialogue. It’s a side 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 tips on how to put the boards collectively, who will keep or go away and who would be the new chairman of the board,” he continues. “You possibly can’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 typically effectively positioned of their marketplaces, perceive their buyer bases and make good choices. These with weak boards are likely to battle with decision-making attributable to disagreements both amongst board members or with govt officers.

“Neighborhood 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 obligations for a financial institution because it goes by the merger or acquisition course of.”

Preserving the worth of the transaction

When one neighborhood financial institution acquires or merges with one other financial institution, there are lots of steps to take and concerns 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 in regards to the extent to which you’ll be able to protect the relationships. This, in flip, preserves the worth of the transaction.”

Submit-merger board succession doesn’t all the time 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 neighborhood banks have been occupied with merging the 2 entities into one. The talks passed off between the 2 holding corporations and initially targeted on the long run course 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 energetic board members onboard as doable.

Then, the banks determined to arrange two boards: one targeted on know-how, operations and day-to-day contact with the neighborhood, 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 understanding fairly effectively for them because of these very early discussions that passed off earlier than deal pricing and future plans have been even mentioned,” he says, advising an identical, proactive method to board succession planning for any neighborhood 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, loads of thought went into which people can be the perfect match for every board.”

What to do when household is concerned

On the floor, an M&A deal involving a family-owned neighborhood financial institution seems to be similar to some other deal. These similarities normally finish when the layers are peeled again on the family-owned entity, whose company tradition isn’t all the time 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 members of the family probably 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 members of the family and 20% to 30% are outdoors administrators,” Tuck explains.

If these members of the family don’t need to hand over 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 degree there could also be six administrators, 4 of whom are members of the family and two of whom are outdoors administrators. Then, on the financial institution degree, there will probably be 10 administrators, six of whom are members of the family and 4 of whom are outdoors administrators. Tuck says it is a quite common post-merger board succession situation for family-owned banks.

“That offers a household consolation, as a result of in the end 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 steadiness of giving the household the management they need whereas permitting an applicable variety of outdoors administrators to be concerned.”

Working by differing priorities

As soon as a neighborhood 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. “In the event you 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 the complete course 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 course is picked, everybody will get on board with it. A robust chairman could make a giant 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 by 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 would like 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?

“Have a transparent course even when there’s competing curiosity. That method, you might have 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 by the problems and assist set baseline enterprise methods. Invite board members to voice their opinions all through the method, he provides, however in the end additionally know {that a} majority of the board must approve choices. Having a robust 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 course is picked, everybody will get on board with it,” says Moch. “A robust chairman could make a giant distinction in driving that ahead momentum for the board itself.”

Honoring expertise and planning for the long run

Relying on how lengthy a neighborhood financial institution has been in enterprise, there could also be board members who’ve been in place for many years. They every deliver their very own strengths and expertise to the board, and their longtime data of the banking trade makes them worthwhile belongings for the group.

Because the banking setting, know-how and buyer preferences all proceed to vary, boards can even profit from some recent faces who might deliver totally different views, expertise and concepts to the desk.

A merger is a chief time to deliver 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 various 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—inside and exterior—as early as doable within the M&A course of, he advises.

Subsequent, contemplate sending these people to ICBA LEAD FWD Summits, ICBA LIVE and different trade management occasions for additional training and coaching and to benefit from networking alternatives. “There’s loads of worth in sending up-and-coming generations to numerous ICBA occasions,” says Juergensen, who feels that the trade as a complete must do a greater job of serving to these people set profession paths and work towards management roles in neighborhood banking.

“We have to assist them see the worth of being within the banking trade, as a result of with out that, we’re not going to have the ability to retain the following technology of banking leaders who’re at present in class,” Juergensen says. “They should see the worth of being within the trade and serving as leaders, administrators, board members and chairmen of the board.”

Communication is essential as you’re employed by the M&A course of and attempt to perceive the client’s and vendor’s place after which attempt to synthesize these to get the absolute best consequence.
—Greyson Tuck, Gerrish Smith Tuck Consultants and Attorneys

Hanging the proper steadiness

To banks which might be working by the post-merger board succession course of or planning an M&A transaction quickly, Tuck says probably the most profitable offers normally contain some degree 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 ought to be a top-of-mind consideration as a financial institution works its method by the method.

“Communication is essential as you’re employed by the M&A course of and attempt to perceive the client’s and vendor’s place after which attempt to synthesize these to get the absolute best consequence,” Tuck says. “That doesn’t imply everybody will get every thing that they need, but it surely does imply that you must strike the proper steadiness between the competing pursuits.”

Bridget McCrea is a author in Florida.