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5 keys to a successful acquisition

May 10, 2013
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When financial institutions are making an acquisition, they need to have a specific purpose and understand all aspects of the institution they’re buying, according to Bob Viering, principal of River Point Group, LLC. Unfortunately, many institutions aren’t prepared internally to absorb another institution. In this guest post, Viering shares five key items executives should know prior to making an acquisition.

Are you prepared to make an acquisition?

By Robert Viering, Principal, River Point Group, LLC

In my 35 years as a banker with banks ranging in size from large national banks to small, rural community banks, I have been involved in many acquisitions and post-acquisition integrations. No matter the size, there are some very important lessons I have learned along the way. Below are my five tips for a successful acquisition.

1. Have a purpose for your acquisition.

When I was a younger banker, I was speaking with an executive of a regional bank because I didn’t understand why a particular acquisition had occurred.  After some of the usual platitudes, he paused, looked away, and said, “I really don’t know why we bought that bank.” While such candor is rare, I’m pretty sure there are a lot of acquisitions that fall into that category. Beyond the typical talk of making more money and increasing shareholder value, there needs to be a well-thought-out rationale and plan for what the acquisition will do for your organization not only today but also over the long run.

2. Know the bank you’re buying, and not just financially.

After you’ve spent time understanding the acquisition target’s credit quality and credit processes, the financial analysis of an acquisition is usually straightforward. The critical questions are really: How do the banks match up culturally?  How good is their staff (really)? Are key employees near retirement? Do they serve a niche that we don’t really understand? You need to review every aspect of the bank and understand its strengths, weaknesses and opportunities. You need to have a clear vision of how the acquisition will fit into your organization. These are the things, in addition to asset quality, you need to be considering in due diligence.

3. Have your own house in order.

No matter how good the acquisition looks on paper, if your institution is not ready to absorb another one into its system, it won’t pay off. Assess realistically your own organization and understand its strengths and weaknesses. Are your current employees capable of managing a bigger, more complex organization? Does the acquired bank have the expertise to help? Integrating an acquisition is far more time consuming than you might imagine. If your internal processes need work, the task of successfully integrating an acquisition and seeing positive results becomes tough.

4. Remember, it’s an investment not a conquest.

Sadly, I’ve seen it happen all too often after an acquisition closes: The buyer will start criticizing the new bank’s employees and credits, trying to show them how to really run a bank. So what if some employees leave and some customers leave too? If you believe that the bank needs significant changes and has credit problems, then you had better factor that into your offer. The acquired bank knows who the boss is now – the new owners don’t need to show them. You need the key employees and customers to stay if the acquisition is going to pay off.

5. It’s about long term success.

Most acquisitions look good in the short run. You still have the acquired bank’s customers, you’ve reduced some expenses, employees seem happy and you’re making more money. Case closed, right? Not so fast. Acquiring a bank is a long-term investment. I’ve seen too many instances where the acquiring bank loses a significant part of the acquisition’s customer base, key employees leave and you wake up five years later with a branch that is half the size of the bank you bought. Now what does your return on investment look like? Having a successful acquisition is about hard work over many years. You have a significant investment that has to be actively planned and managed over time.

 

For more information on when banks should consider mergers and acquisitions, download the whitepaper, titled: Bank Mergers and Acquisitions.

Bob Viering is a former banking executive with large, regional and community banks and also started a de novo bank. After 30 years as a front-line banker, Bob started River Point Group. River Point Group is a community-bank consulting firm that works with banks in transition. Their work includes loan reviews, regulatory actions, preparing for sale/purchase, strategic planning and transition management.

The advice and views in guest columns are intended for informational and discussion purposes only and do not necessarily reflect the views of Sageworks or its employees.

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