Five Lessons that Banks with M&A Aspirations Can Learn From Serial Acquirers

By Adam Mustafa

After the financial crisis, a new crop of serial acquirers emerged in the community banking space.    

These banks have developed and refined M&A as a core capability.  Other community banks with aspirations for acquisitions can leverage some best practices commonly deployed by these serial acquirers.  Community banks can also use new analytical tools to achieve these same objectives. Many banks are unaware of these new powerful analytics and don’t use them.

Here are five lessons in particular:

These banks create deals, instead of waiting for them. In other words, serial acquirers do not wait for banks to put themselves up for sale.  Instead, they proactively approach banks and begin a courtship process.  Even if the vast majority of banks say “no thanks,” they move on quickly and leave their calling card behind.  This approach yields a number of benefits.  First, by being proactive, serial acquirers often pre-empt an auction, and in fact, many of them consider an auction process to be a showstopper.  When serial acquirers send an offer letter, it typically comes with a “no-shop” clause as a non-negotiable condition.  Second, this approach gives them scalability and increased efficiency.  Each proactive attempt is a seed being planted.  They plant seeds fast and the more seeds they plant, the more opportunities they can harvest down the road.

They don’t make low-ball offers. Serial acquirers recognize that to successfully circumvent an auction process, they must be willing to make an attractive offer relative to the bank’s condition.  In fact, the offer is usually politely presented as non-negotiable, putting the onus on the target to “take it or leave it.”  Target banks can reject the offer, but they run the risk of not finding a better offer in an auction.  The key to making attractive offers without overpaying is analytics.  Serial acquirers recognize that a given bank has a specific value to them, and can also quantify how the value of a given bank would change if economic conditions change.  This approach gives these banks a competitive edge in the market, and also makes them independent of investment bankers.

They make decisions quickly.  Serial acquirers can value target banks very quickly, and can do so with only publicly-available data.  They don’t need to do exhaustive due diligence as part of the analytical exercise used to price the initial offer.  Instead, due diligence is treated as an exercise that confirms there are no surprises.  When receiving a reverse inquiry from another bank, they make “go or no go” decisions very quickly.

They bring other forms of value to the table besides price.  Talk to any serial acquirer, and the one thing they promise to a target before they even send an offer letter is speed and certainty.  When they make an offer, it should be viewed as “good as gold,” barring a shocking discovery in due diligence.  In many cases, they have received their regulator’s blessing in advance.

They view M&A as a priority in their strategic planning.  In other words, serial acquirers don’t just dip one toe into the water.  They jump in with both feet.  While they are not always in constant acquisition mode, they treat M&A as a line of business when they are.  They budget for it, they create timelines for it, and they measure how they are doing.  Most banks with less deal experience take more of an “opportunistic” (i.e. reactive) approach to M&A.  In other words, if “the right deal is presented to me at the right price, I might be interested.”  This approach is rarely effective and more often than not, leads to a low success rate when bidding in auctions or looking at banks that have already been shopped around. 

Aspiring acquirers can apply these lessons without requiring any deal experience or having to be in a constant acquisition mode.  In fact, Invictus is currently working with several banks to provide them with similar capabilities.  Many serial acquirers are on a temporary break, focused on digesting their recent acquisitions.  This has created a vacuum for would-be acquirers who are willing to take a similar, albeit aggressive approach to M&A.  The Invictus approach uses new analytical tools that can help would-be acquirers gain significant knowledge about a target without ever having to contact it.