ABA Banking Journal - November/December 2017 - 28

FEATURE > DIRECTORS

Eager or Not, Every Board
Needs an M&A Strategy
BY DEBRA COPE

B

anks and their boards run the gamut in their attitudes
toward mergers and acquisitions, with some actively
looking for deals, some open to the right partner
and some determined to go it alone. One thing they
have in common is that even the most independentminded bank needs a framework its board can use to evaluate
potential transactions, industry experts say.
"You may not be looking, but if an opportunity pops up
in your neighboring community, it behooves you to be
prepared to strike at it," says Francis Godfrey, a partner with
BKD CPAs and Advisers in St. Louis. "It is a best practice to
always have a feel for what the market is in your geographic
area and in your industry."
Deal activity involving community banks with assets of
$10 billion or less at midyear 2017 was about even with
2016, but with significant differences. Nine large deals-
valued at $500 million or more-had been struck by July,
equaling the totals for 2015 and 2016 combined, according
to Nathan Stovall, senior research analyst on the U.S.
banking sector at S&P Global Markets Intelligence in New
York. As of July, the deal pace was on track to hit 237
transactions involving community banks in 2017, up just
one notch from 2016, he noted.
In addition, pockets of intense activity, notably in the
Southeast U.S., offset a decline in deals in the Midwest,
according to Rick Childs, a partner with Crowe Horwath LLP
in Indianapolis. Valuations are also up dramatically as stock
markets have rallied, pushing community banks' price-totangible-book ratio to 160 percent in the first six months of
2017, from 128 percent a year earlier, he notes.
The budding evidence of a revival in bank M&A, after deal
volume fell between 2015 and 2016, is a reminder to boards
to assess what their posture toward offers and opportunities
will be, and whether they need to fine-tune how they
evaluate transactions.
The board's annual strategic planning session with senior
management is usually the ideal venue for a robust

28

ABA BANKING JOURNAL | NOVEMBER/DECEMBER 2017

discussion of a bank's M&A strategy, says Paul Jaskot, a
partner with the law firm Reed Smith in Philadelphia. "It's
the time when you can take a step back in a more relaxed,
thoughtful way to sit down and focus on long-term issues,"
he explains. M&A work begins with senior management
mapping out strategy, but the board has a responsibility to
engage with management in a strategic discussion about
where the bank is going and to represent the interests of
shareholders, he added.
"Boards should have an awareness of where the institution
fits in the M&A market and who some of the likely targets
or buyers might be," Jaskot adds. "If you're waiting until an
offer lands on your desk, you're probably not fulfilling your
fiduciary duties."

Beyond yes, no or maybe
The strategic planning meeting is a chance to start drilling
down into the details of how the board should evaluate M&A
opportunities. "Consider what you would be interested in if
an opportunity came to you," Childs says. "It could be as
simple as saying, 'We're uncomfortable buying something
that takes more than two hours to drive to.' You can also
define how willing you are to take on institutions with some
regulatory or earnings issues."
Every board member should grasp what the bank can afford
to buy. "You can use the annual board planning meeting to
review an example of what an acquisition would look like on
a pro forma basis," Childs adds.
How frequently M&A should be discussed in board
meetings will depend on how actively the bank is pursuing
opportunities. "You probably don't need to do it every month
if you're not pursuing anything, but every quarter is good,"
Childs suggests. Board members should expect regular
updates on the state of the market and any transactions in
the bank's geographic area, he says.

When the deal gets real
Boards often have a good idea of the type of premium that
would get their attention, whether they are buying or selling.



Table of Contents for the Digital Edition of ABA Banking Journal - November/December 2017

Chairman’s View
Upfront
Legal Briefs
Economic Outlook
Power Up Profile
Pitching In
Choices and Options Down on the Farm
Eager or Not, Every Board Needs an M&A Strategy
Adapting to Survive
More Than Just a Drink
Operations
Payments
Small Business Lending
Human Resources
ABA Compliance Center Inbox
From the States
Corporate Social Responsibility
Index of Advertisers
From the Vault
ABA Banking Journal - November/December 2017 - Intro
ABA Banking Journal - November/December 2017 - ebelly1
ABA Banking Journal - November/December 2017 - ebelly2
ABA Banking Journal - November/December 2017 - cover1
ABA Banking Journal - November/December 2017 - cover2
ABA Banking Journal - November/December 2017 - 3
ABA Banking Journal - November/December 2017 - 4
ABA Banking Journal - November/December 2017 - 5
ABA Banking Journal - November/December 2017 - 6
ABA Banking Journal - November/December 2017 - 7
ABA Banking Journal - November/December 2017 - Chairman’s View
ABA Banking Journal - November/December 2017 - 9
ABA Banking Journal - November/December 2017 - Upfront
ABA Banking Journal - November/December 2017 - 11
ABA Banking Journal - November/December 2017 - 12
ABA Banking Journal - November/December 2017 - 13
ABA Banking Journal - November/December 2017 - 14
ABA Banking Journal - November/December 2017 - 15
ABA Banking Journal - November/December 2017 - Legal Briefs
ABA Banking Journal - November/December 2017 - 17
ABA Banking Journal - November/December 2017 - Economic Outlook
ABA Banking Journal - November/December 2017 - Power Up Profile
ABA Banking Journal - November/December 2017 - Pitching In
ABA Banking Journal - November/December 2017 - 21
ABA Banking Journal - November/December 2017 - 22
ABA Banking Journal - November/December 2017 - 23
ABA Banking Journal - November/December 2017 - 24
ABA Banking Journal - November/December 2017 - 25
ABA Banking Journal - November/December 2017 - Choices and Options Down on the Farm
ABA Banking Journal - November/December 2017 - 27
ABA Banking Journal - November/December 2017 - Eager or Not, Every Board Needs an M&A Strategy
ABA Banking Journal - November/December 2017 - 29
ABA Banking Journal - November/December 2017 - Adapting to Survive
ABA Banking Journal - November/December 2017 - 31
ABA Banking Journal - November/December 2017 - 32
ABA Banking Journal - November/December 2017 - 33
ABA Banking Journal - November/December 2017 - More Than Just a Drink
ABA Banking Journal - November/December 2017 - 35
ABA Banking Journal - November/December 2017 - Operations
ABA Banking Journal - November/December 2017 - 37
ABA Banking Journal - November/December 2017 - Payments
ABA Banking Journal - November/December 2017 - 39
ABA Banking Journal - November/December 2017 - Small Business Lending
ABA Banking Journal - November/December 2017 - 41
ABA Banking Journal - November/December 2017 - Human Resources
ABA Banking Journal - November/December 2017 - 43
ABA Banking Journal - November/December 2017 - 44
ABA Banking Journal - November/December 2017 - ABA Compliance Center Inbox
ABA Banking Journal - November/December 2017 - From the States
ABA Banking Journal - November/December 2017 - 47
ABA Banking Journal - November/December 2017 - Corporate Social Responsibility
ABA Banking Journal - November/December 2017 - Index of Advertisers
ABA Banking Journal - November/December 2017 - From the Vault
ABA Banking Journal - November/December 2017 - cover3
ABA Banking Journal - November/December 2017 - cover4
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