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Elements of a successful bank M&A strategy

A bank CEO offers 4 tips for successful banking M&A, including lessons from making deals during COVID.

6 min read


Illustration of bank M&A

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Banks are merging and acquiring each other at the fastest pace since the global financial crisis began and signs point to that uptick continuing into 2022.

What’s driving these deals? For most banks, it’s the purchasing power inherent in rising stock values and some combination of three reasons — cutting relative costs through scale, mitigating risk through diversification or, increasingly, accelerating their investment in technology.

M&A now regularly involves non-traditional players — for example, banks buying tech companies and wealth management firms. New players are disrupting old businesses, and one way old-line businesses can protect themselves against these threats is by bringing disruptive capabilities in-house.

b1BANK, the community bank I am honored to lead, has participated in this broader trend, completing four whole-bank acquisitions over the past few years, as well as the acquisition of a wealth management firm, Smith Shellnut Wilson. We’ve recently announced the pending acquisition of Texas Citizens Bank, headquartered in the Houston area, which we expect to close in the first quarter of 2022.

We’ve been blessed by success in each of these mergers, and there’s not one I wouldn’t do again, given the chance. That’s not to say they’ve been easy, though, and as we’ve worked our way through these opportunities, we’ve observed a handful of common themes.

The power in your people

Early in my career, I assumed banking was all about the numbers. In reality, it’s almost all about the people, which means it’s about personalities, biases, emotions, competing (and sometimes conflicting) desires. And that’s just the CEOs!

Bankers serve multiple stakeholders and constituencies: clients, board members, employees at various levels, regulators, analysts and shareholders. When you consider what it takes to mesh those constituencies and their particular perspectives across two organizations, it becomes clear how complications with people issues have the potential to grow exponentially.

If you can successfully navigate these intangible complexities, M&A is a wonderful opportunity to help people grow beyond their and your expectations. Many people in the banks that we’ve acquired are now excelling in jobs they never thought they’d tackle, and partnering with us has given them an opportunity for career growth. M&A has also been a fantastic opportunity for our current employees to stretch, learn and excel.

Exercise outside of the routine builds muscle, and M&A done right builds a team of more than capable people.

Mind the deal, not the deals

Even though we’ve done a relatively large number of deals for a bank our age, we don’t consider ourselves a rollup. Our focus remains reinvesting in organic growth capability to better serve our clients, primarily small-to-midsize businesses and their owners and employees. That means we use M&A as an accelerant to our strategy, not as the strategy.

A couple of important things result from this perspective. First, by successfully investing in organic growth, we have earned the freedom to not do deals. Many companies have bet their growth strategies on acquisitions only to find circumstances have changed, and they are caught on a slippery slope — do not-as-attractive deals or stop growing.

If we can keep from having to do a deal, we are more likely to do additive deals and less likely to do deals just for the sake of doing them or, worse, bad deals.

Second, if we’re going to do a deal, it needs to matter. We have other options for how to spend our resources, so the bar for allocating those resources ought to be higher. Rather than lumping multiple acquisitions in as a group and assuming they will work out collectively over time, each deal should stand on its own merits, providing specific advantage to our company’s cause.

Every deal matters, and keeping the bar high makes that successful outcome more likely.

Commit to a strong follow-through

It really doesn’t matter how well a deal is priced or how strategic the fit is if it is not integrated thoroughly.

We start planning our social integration while we are constructing the deal framework. We try our best to be ready to interact with our soon-to-be-new teammates as early as possible after the public announcement, well before the closing process has gotten underway.

Technological integration is critical. This is true of the core systems, as well as myriad other software platforms across every function.

We carefully track our projected cost savings and make sure we are keeping the promises we made. There are many chances to mess something up, but if you were conservative in your assumptions, you can still outperform.

There may be moments that test your resolve. Our most difficult merger was also our largest, with Pedestal Bank, a 20+-year-old company in south Louisiana about 60% of our asset size. It was one of the larger mergers in the history of Louisiana community banking, and we announced the deal to positive reviews in January 2020.

By the time of our shareholder meeting in April, COVID-19 was raging, the price of oil had gone negative, and our stock was trading at 30% of its value on the day of the announcement.

We had a choice to make proceed or pull out. We chose to proceed. Moving forward came down to three things.

  1. We were comfortable with the cultural fit. Our management teams had known each other for years, and I knew they were good bankers.
  2. I knew the rewards for completion, all the reasons we chose to do the deal in the first place, remained significant. This deal mattered.
  3. While I knew the integration would be difficult, we had confidence that when it was complete, we would be stronger than ever.

As in much of life, the most difficult things, once completed, tend to be the best things, and with the merger now two years behind us, I’m pleased to say this merger proved the rule.

M&A is neither as glamorous nor as simple as it appears and should not be entered upon lightly. But done the right way for the right reasons, with a focus on people, strategic fit and follow-through, it can be a powerful accelerant helping companies achieve their utmost.

David “Jude” R. Melville III serves as president and CEO of b1BANK and a director of Business First Bancshares Inc. (Nasdaq: BFST) and b1BANK. Prior to becoming a community banker, Melville served as a captain in the U.S. Air Force. He earned a bachelor’s degree in social studies from Harvard College and a master of science in management from the London School of Economics. Melville is also a graduate of the Graduate School of Banking at Louisiana State University. He serves as chair of the Federal Reserve Depository Institutions Advisory Council (CDIAC), secretary of the Louisiana Association of Business and Industry (LABI), and chair of the Louisiana Association of Public Charter Schools (LAPCS), in addition to other affiliations, including Louisiana’s Committee of 100.

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