The Do’s and Don’ts of Bank M&A in 2025

With the lackluster deal market in 2024, countless institutions ready for a transition, a more favorable interest rate environment and a change in administration, bank M&A is set to rise again in 2025. Below are a few critical do’s and don’ts for bank mergers and acquisitions.

Do discuss M&A at regular board meetings.

Discussion early and often avoids getting caught off-guard. Acquirers are all acquirers until they are targets. Critical, consistent discussion regarding the parameters of any strategic goals, transactions or growth lessens the fire drill that inevitably arises when a banker calls with a potential deal or an indication of interest is sent with an attractive premium to consider. Having regular conversations in this area will allow the board to react appropriately and meet its fiduciary duties.

Do a thorough audit of your institution.

Is your own house in order? Federal bank regulators consider, and each acquirer must address, a variety of issues in every application. This includes factors related to the competitive effects of the transaction; the financial condition and future prospects of the acquirer; the competence, experience and integrity of the management of the acquirer and resulting institution; and the convenience and needs of the communities to be served. Regulators need to feel confident that the acquirer  is in order before permitting it to take on a target — no matter how clean the target may appear.

Consider reviewing recent examinations for areas that needed improvement. Are there outstanding or recently closed enforcement actions against the acquirer or the target? Have any issues been fully resolved? Are there upcoming exams or visits scheduled? Each of these plays into the regulatory review of applications to merge or acquire.

Do consider the softer elements of a strategic transaction.

Acquirers need a sense of which aspects of the target should remain going into a potential transaction. This includes the target’s employees, locations and potentially existing management or board representation. Many targets receive a letter of intent or indication of interest with generic language related to employee retention.

After the deal announcement, managers and staff jump to questions like:

• “What will happen to me and my staff?”
• “Will I have a job?”
• “How will my benefits change?”
• “What does this mean for me?”

Leaders will wonder what the transaction means for the resulting institution’s branch footprint, communities served and, ultimately, its assessment area under the Community Reinvestment Act.

Don’t believe you are the only show in town.

Some acquirers may be under the impression that they offer a good deal, one below book value, for what may be a struggling target, but this is typically not the case. Most markets have more buyers than sellers, and the buyers are not just banks. They may be individual investors, investor groups, credit unions or others looking for a bank charter. The financials run the deal, and if an acquirer is convinced that it offers a good deal for a bank that makes sense, their executives could learn the hard way that it wasn’t such a good deal for the target. If you get the financials figured out, stick to market terms for market deals. Seeking off-market terms for an otherwise straightforward transaction helps no one.

Don’t plan on an unrealistic timeframe to consummate the transaction.

The corollary to the second point above is that the regulatory review takes time, and typically, more time than anyone expects or than the statutes contemplate. Submitting an application is just the beginning, and, in reality, we’re talking about multiple applications to multiple agencies. Some fun transactions require multiple types of applications to the same agency based on the structure or timing of the transaction.

Make sure you go to submission with as comprehensive an application as possible but be realistic in terms of timing. Even the most vanilla transactions can take 90 to 120 days for approval simply because an agency is short-staffed or overloaded with work. Then there are the requests for additional information and, in many cases, requests for updated information. This is especially the case with financial projections. To be sure, there are very limited ways to accelerate this process.

Keeping these do’s and don’ts in mind will cement an institution’s preparedness for a strategic transaction, temper expectations and produce a realistic timeframe for consummation.