Pub. 5 2016 Issue 3

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 30 RETAINING KEY EMPLOYEES IN AN ACQUISITION REQUIRES CAREFUL PLANNING & EXECUTION By Wyatt Jenkins, BKDCorporate Finance, LLC wjenkins@bkd.com P RICINGANDDEAL volume in bank mergers and acquisitions were mostly steady during 2015, and 2016 is likely to proceed at a similar pace. Average deal value to earnings was 21.34 percent in 2015 based on 282 pending and completed deals, compared with 21.27 percent in 2014 for 283 transactions. Average deal value to tangible common equity was 1.45x in 2015 compared to 1.43x in 2014. Barring unforeseen economic challenges, community bank transaction activity is likely to continue at a stable pace into the future. While lower profitability, heightened regulatory oversight and increased capital requirements may contribute to the decision to sell, most community bank transactions are driven by seller succession planning considerations and shareholder liquidity needs. With these drivers pushing some banks to consider finding a partner, prospective buyers need to proactively assess their merger and acquisition strategy. Average cost savings of 30 to 40 percent in a bank acquisition are tantalizing to many potential buyers. However, potential acquisitions always should be evaluated both for near-term and long-term potential. The acquirer needs to ensure the deal makes sense not only as a combination of assets, liabilities, income and expenses on Day One but also as two institutions with distinct markets, customers, employees and cultures that can work together in the long run. There are multiple important factors when considering a potential merger or acquisition target— growth opportunities, geography, business lines, asset quality, regulatory issues, due diligence, key employees, technology and integration. Significant issues in any of these areas can derail an acquisition. However, planning to effectively address personnel considerations is one area where community bank acquirers should spend significant time. In community bank acquisitions, growth often is driven by retaining key people—and the valuable relationships they bring. Many transactions that look foolproof on paper have failed to achieve the stated acquisition goals because of personnel issues. Compensation is a critical component of retaining the best people, so the buyer should carefully examine pay and benefits and consider the artful deployment of retention bonuses. However, once compensation has been effectively addressed, communication becomes the key to employee retention and engagement. Transaction communication starts with the buyers’ initial interactions with the board and executive management team of the seller. If handled properly, these initial open and honest conversations build a strong foundation for successful communication throughout the entire process. However, communication with employees starts in earnest with employee meetings the day the transaction is announced. It’s critical that the buyer be prepared to address employees the day the transaction is announced and share details of what’s to come. People on both sides of the transaction will have questions: What does this mean to me? What’s expected of me? How