Behind The Scenes Of The Business Acquisition Process For Banks


jigsaw puzzle piece with word acquisitionBank leaders set out to acquire banks for a wide range of reasons, including the desire to scale their business, expand their footprint and gain new customers.

While the public only sees the end result – one bank acquired by another – there is a process that goes on behind the scenes to ensure everything happens smoothly and that the transition is seamless for customers of the new combined institution.

Six Steps To The Bank Acquisition Process

The mergers and acquisition process requires significant time and resources and each step in the process must be strategically planned for the best possible outcome. If acquiring another bank is deemed to make good business sense, bank leaders may seize the opportunity to grow their brand and increase their profit margin.

There are many things that a bank should consider to determine if the acquisition is a good business decision, such as the current competition in the market and the internal capabilities of the institution. Bank leaders rely on many external advisors to provide guidance and expertise specific to each step in the process.

Step 1: Identifying Targeted Bank Candidates

The acquisition process begins when leaders of one institution decide to pursue acquisition as a strategy for growth.. This decision cannot be made haphazardly, as not all banks will be the right fit from a financial or cultural standpoint.

When looking for the right candidate, leaders must consider the following:

  • What are our business goals? How can this institution help us meet those goals?
  • Who are their customers? How can gaining these customers help our business?
  • What is the bank’s culture? Does it fit with our existing culture?

With those questions answered, leaders are ready to move to the next step.

Step 2: Creating an Internal Plan for Proposals

The biggest mistake a bank can make before an acquisition is not creating an internal plan for proposals. Having this roadmap in place will prove an invaluable asset that provides bank leaders with reassurance that the right candidates are being targeted based on a list of strict criteria.

Proposals should sell the opportunity as best as possible and include details relating to financials, assets, corporate structure and similar areas of the banking business.

Step 3: Negotiating on the Transaction

Many mergers and acquisitions experience delays when it comes to pricing. There are several ways that banks may be valued.

business man handshake with effect global world map networkIf the target bank has shares that are publicly traded on a stock exchange, valuing the company may involve multiplying the stock price by the company’s outstanding shares.

Valuing private companies can be more complex and require extensive negotiations. Many factors will affect the outcome of the transaction, such as if there is licensed intellectual property involved, recent sales prices, financial projections and how comparable institutions have been recently valued.

Step 4: Securing Approval and Beginning the Acquisition

If negotiations go well, the two banks will generally reach a deal that is mutually beneficial. This is when the approval should be secured and the final phases of the acquisition started.

At this stage in the process, several aspects of the transaction should be clear, including the anticipated benefits of the transaction, the risks involved and how the target compares to other target opportunities. Reaching these conclusions may require some research, as well as a comprehensive evaluation of the target bank’s financial and credit position.

Step 5: Conducting Due Diligence and Other M&A Processes

If the offer is accepted, the due diligence process can begin right away and typically lasts between three weeks and three months, depending on the size of the institution.

During due diligence, banks have the final opportunity to fully understand the existing obligations, including any long-term customer agreements, potential lawsuits, distribution agreements, debts, leases, warranties, employment contracts, compensation agreements and other common business components.

Bank leaders can spend this time getting acquainted with how the business operates so that no time is wasted when the transaction is complete.

Step 6: Ensuring a Successful Close-Out on the Acquisition

The final phase in the bank acquisition process is the closing. Closing this type of deal requires the assistance of an advisor experienced in M&A processes.

There are many types of documents that must be completed at this stage, such as an operative transaction agreement, regulatory approvals, legal opinions, ancillary agreements, evidence of third-party consents, binding offer and terms of funds transfer.

Speak With Our M&A Advisors For More Information

No two bank acquisitions are exactly the same so the time-frame can significantly vary from one case to the next.

business group leadership concept as a merger and acquisitionHowever, most institutions can expect the general time range for a full acquisition process to be about six months to one year.

Even when the deal has closed, the integration and post-acquisition management practices can pose some challenges. Fortunately, an advisor can help guide bank leaders through these processes. For more information about how the business acquisition process works for banks, reach out to the M&A experts at Hartman Executive Advisors today.


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