I recently had the opportunity to meet with a group of community banks to discuss the process of creating a comprehensive and effective growth strategy.  During the course of our conversation, we examined the numerous road blocks facing community banks and their growth opportunities and touched on a variety of topics including unclear top level corporate vision and direction, competition, regulatory uncertainty, capital adequacy, slow to no-growth markets and stagnant mergers and acquisition activity.

Our meeting opened with a discussion about the importance of vision and choosing your partners wisely. Unclear vision and direction from the board of directors has been a huge roadblock inhibiting the growth of many companies, including community banks.  The importance of a 2-5 year plan that has 100 percent buy-in from the top brass is hugely important.  Creating a plan for success is equally important, as well as choosing partners that you can trust and hold accountable.  Not every bank and management team is the same so not every trusted partner (i.e. investment banker, lawyer or consultant) will fit for everyone.  Each management and board has to be diligent in choosing their partner.

Next we discussed how to determine if you have the capital adequacy to execute your plan, and if you don’t, what options do you have?  There are several factors to consider when it comes to the use of capital to support organic or acquisition growth (public vs private, mutual or stock company).  Often, the easiest path to access capital is through a public stock company ready to execute on acquisitions, however if that option isn’t available there are several other opportunities to explore.
On the topic of mergers and acquisitions, we reviewed a variety of industry research and statistics.  Our examination included number of transactions, the average price to earnings, average price to tangible book value and the average core deposit premium by different asset sizes.  We also looked at numerous median acquisition statistics broken out by regions, the West, Midwest, Northeast, Mid-Atlantic and Southeast.  We had a lively discussion based on a word cloud that included the terms and jargon associated with M&A activity.  Words like “culture”, “growth”, “new opportunities” and “optimism” come to mind when you are the one making the acquisition.  However when you are the one being acquired “job security”, “downsizing” and “fear” are more common.  It’s important to understand both sides of the equation when considering mergers and acquisitions.

One of the key takeaways from the event was a reminder that the acquisition process is a marathon not a sprint.  The process can be long and challenging at times.  In order to be successful you need to show the value for each organization which can mean different things to different banks.  Some may value employee jobs or community value and involvement while others may be most concerned about “Golden Parachutes” for a leadership team looking to move on.
Each company values something different and understanding and showing that value, as well as willingness to compromise, is what will eventually lead to a successful deal for both sides.

Matt Magee is a director in the Financial Communications practice for Lambert.  He has more than a decade of experience in the financial industry, including a background ranging from investment banking to equity trading.