Bank Executives choose bank acquisition for a variety of reasons, including a desire to grow their business, expand their presence, and attract new customers.
While the public only sees the end result – one bank being acquired by another – there is a process going on behind the scenes to ensure that everything goes smoothly and that the transition is smooth for the customers of the new merged institution.
(Six Steps Process)
The merger and acquisition process requires a lot of time and resources and every step of the process should be strategically planned to achieve the best possible outcome. If acquiring another bank is viewed as a good deal, bank managers can take advantage of the opportunity to build their brand and increase their profit margins.
To determine whether the acquisition is a good business decision, a bank must consider many factors, including current market competition and the institution’s internal capabilities. Bank Executives rely on numerous external consultants to provide them with specific advice and expertise at every step of the process.
potential target banks
The acquisition process begins when an institution’s leaders decide to pursue acquisitions as a growth strategy. This decision cannot be made randomly as not all banks are financially or culturally suitable for this.
When looking for the right candidate, Executives should consider the following:
- What are our business goals? How can this institution help us achieve these goals?
- Who are your customers? How can attracting these customers help our business?
- What is the culture of the bank? Does this reflect our current culture?
Once these questions are answered, leaders are ready to take the next step.
Create an internal proposal plan
The biggest mistake a bank can make before an acquisition is not creating an internal offering plan. Having this roadmap will prove invaluable and provide bank managers with the confidence that the right candidates are being selected based on a list of rigorous criteria.
Proposals should best sell the opportunity and include details of finances, assets, corporate structure and similar areas of the banking business.
Negotiate the transaction
Many mergers and acquisitions experience pricing lags. There are different ways to rate banks.
If the target bank owns publicly traded shares, valuing the company may consist of multiplying the share price by the number of shares outstanding in the company.
Valuing private companies can be more complex and require extensive negotiations. Many factors will affect the outcome of the transaction, such as the presence of licensed intellectual property, current sales prices, financial projections and the current valuation of comparable institutions.
Get approval and start prospecting
If negotiations go well, the two banks will usually reach a mutually beneficial agreement. At this point, approval must be obtained and the final phases of the acquisition begin.
At this point in the process, several aspects of the deal should be clear, including the expected benefits of the deal, the risks involved, and how the target compares to other target opportunities. Reaching these conclusions may require research and a comprehensive assessment of the target bank’s financial and credit condition.
Conduct due diligence and other M&A processes
If the offer is accepted, the due diligence process can begin immediately and usually takes between three weeks and three months, depending on the size of the institution.
During due diligence, banks have the final opportunity to fully understand existing obligations, including long-term customer contracts, potential litigation, distribution agreements, debt, leases, guarantees, employment contracts, indemnity agreements and other common business elements.
Bank executives can spend this time getting acquainted with how the deal works so they don’t waste time once the transaction is completed.
Ensure successful completion of the acquisition
The final phase of the bank takeover process is nearing completion. Completing such a transaction requires the assistance of an advisor experienced in the merger and acquisition process.
At this stage, many types of documents need to be filled out, such as: E.g. an operational transaction agreement, regulatory approvals, legal opinions, side agreements, evidence of third party consent, binding offers and conditions for the transfer of funds.
Speak to our M&A advisors for more information
No two bank takeovers are the same, so timings can vary significantly from case to case.
However, most institutions can expect the general time frame for a complete acquisition process to be approximately six months to a year.
Even after the transaction is completed, post-acquisition integration and management practices may present some challenges. Fortunately, a consultant can help bank managers guide these processes. For more information about how the corporate acquisition process works for banks, contact the M&A experts at Savings UK LTD today.