Behind every good M&A deal is a good succession plan

A deep bench is important for any bank, but strong succession plans are crucial once banks decide to become active M&A players.

Occasionally financial institutions have to deal with the unexpected departure of a key executive — someone could suddenly retire or be diagnosed with a serious illness. Abrupt management changes can imperil acquisitions that are currently being negotiated or have already been announced. Potential sellers may shy away from buyers that rely too heavily on a key individual.

Creating a collaborative environment where multiple executives are given a voice and groomed for great responsibilities can put sellers at ease that transactions will be completed and meet expectations no matter who is at the helm.

“You need to be prepared for the worst to happen,” said Adam Eckels, co-founder of AJ Consultants, an executive search firm that specializes in financial institutions. “We buy car insurance in case we get into an accident. We prepare to get hurt at work with disability. Why as people do we do that but companies don’t? You have to be proactive.”

Having someone being prepared to take over leadership can protect the bank’s brand, performance and stock price. JPMorgan Chase largely remained steady when Chairman and CEO Jamie Dimon underwent treatment for throat cancer in 2014 because there were other capable executives to run the organization and management communicated clearly about the situation.

“If you are a charismatic-driven bank with one strong leader that everyone looks to, and that is the perception of selling banks, then that’s a problem,” said Kris St. Martin, a former banker and bank program director at CBIZ, an insurance and valuation firm. “From a buyer’s point of view, you want to position yourself as broad and deep as far as talent goes.”

Institutions that fail to think about succession planning could be hurting their stock prices, said Jeffrey Rulis, an analyst at D.A. Davidson. Additionally, a buyer’s stock price could plummet after an acquisition closes if a key player unexpectedly leaves and investors doubt the company has a worthy replacement. How the buyer’s stock price will perform over the long haul is of great concern to sellers who plan on taking shares as payment.

“Putting your best foot forward is presenting a team that is capable regardless of change,” Rulis said.

Columbia Banking System in Tacoma, Wash., recently had its strength of leadership tested, and so far it has held up under the strain, experts said. Melanie Dressel, the company’s longtime CEO, helped build the franchise from a relatively small bank into a regional powerhouse poised to cross $10 billion of assets. She achieved this partly by completing 11 bank acquisitions during her 17-year tenure as the company’s leader.

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But Dressel unexpectedly passed away in February about a month and a half after the $9.5 billion-asset company announced a deal to buy the $2.6 billion-asset Pacific Continental Bank in Eugene, Ore. Columbia’s chief operating officer, Hadley Robbins, was tapped to serve as interim CEO and then given the job permanently last week.

As part of the initial conversations between Pacific Continental and Columbia, both sides completed thorough due diligence, including reviewing succession plans should any potential leadership changes occur, said Roger Busse, president and CEO of Pacific Continental. Busse said he is confident because Robbins is a strong leader who has played an important role at Columbia over the last few months.

“Comprehensive strategic planning must evaluate and develop leadership talent, which tangibly benefits the future success and strength of a bank,” Busse said. “Indeed, for any company to be successful, business leaders must not only be working on what is happening in their business today but also be working towards future success. Succession planning and grooming talent are essential.”

Hadley Robbins - Columbia - July 2017

The board and management quickly took steps to let key stakeholders — employees, investors, regulators and executives at Pacific Continental — know that the bank had a plan in place to continue with its normal operations in addition to the acquisition, Robbins said. There are currently no concerns about completing the acquisition, which Columbia could close as early as Aug. 1, Robbins said.

“More than anything we tried to let people know that we had a plan, we had a strategy, we knew how to run the bank and the bank will be stable,” said Robbins, who joined Columbia after it bought West Coast Bancorp in 2013. “The board had the luxury of time to make a considered decision on a permanent CEO.”

The board completed a thorough executive search, including hiring an outside firm to bring in candidates. That indicated that it had faith in Robbins to run the organization on an interim basis and that it saw him as the best candidate for the job, not just the most convenient, experts said.

The virtues of readiness aside, transitions must be handled with some grace to preserve morale, experts said. Honoring a key figure hints at the organization’s culture and shows that it has a solid infrastructure with an ability to adapt, Eckels said.

“If a bank loses a CEO and they just kind of move on, don’t you think everyone else begins to wonder, ‘If they don’t care about the leader of the company, why would I think they care about me?’ ” Eckels said. “It’s important to show that people matter and the bank is a family.”

Dressel had made community involvement a cornerstone of her leadership, so to honor her, Columbia organized a service day in April. More than 600 employees participated across three states in 70 different volunteer projects as part of the day, and there are now plans to host the event on an annual basis, Robbins said.

“It was a wonderful tribute to her and showed how much she meant to us,” Robbins said. “It helped the bank heal.”

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