With organic growth hard to achieve today, many banks are considering acquiring failed banks from the FDIC, expecting that their expertise in traditional acquisitions will be an advantage.
FDIC acquisitions are a high-stakes race, where days, even hours, determine winners. Players need a playbook as detailed and decisive as their traditional M&A playbooks but expressly designed for the purpose, ready to deploy at racing speed.
The risks are several: failing to qualify as an approved bidder, being unprepared with data needed for an informed bid, lacking comparative data for assessing information from the FDIC, being unfamiliar with the FDIC questionnaire and misunderstanding how the FDIC values its merchandise.
We urge bidders to rehearse the whole bid process in advance. Specifically, what types of failed banks serve your strategy — what assets, infrastructure and communities are compatible? What if you could ask the FDIC only 10 questions, out of which you had to derive your anticipated expense and savings? What have recent bid winners paid?
Bidders must have their own volume assumptions already documented so they can quickly apply them to the failed-bank data: branch staffing standards, item processing workloads, transportation volumes, automation or any other indicators of potential efficiencies.
Waiting until the bid packet arrives means struggling to assess the bank's value, its potential efficiencies and a good bid.
After winning a bid, acquirers must meticulously address virtually every facet — customers, employees, community, signage, operations, systems, compliance, and marketing — so that after the bank is closed on a Friday, the new owners are ready to open for business on Monday (or sometimes even Saturday).
Customer relationships are imperiled when customers learn their bank has failed. Good employees of failing banks may start considering career alternatives.
Any misstep by the new owners — losing valuable customers or employees, making a poor impression on the new community, causing an operating glitch — sabotages the return on their new investment.
Within a couple of weeks, acquirers must calmly and confidently get the organization to run smoothly in its temporary state. Nothing is more destabilizing than the appearance that new management is improvising.
Because not all existing staff are a match for transitional needs, management must make a priority of resource allocation, hiring and training.
This is no time for negotiating contracts for critical resources. Well-prepared acquirers have in place sourcing agreements that let them seamlessly ramp up overnight for urgent tasks, ramp down as quickly on their completion and backfill routine jobs when experienced employees get pulled into stabilization roles.
Not until the organization has been stabilized can due diligence be conducted. This takes two paths: One is tactically determining how to integrate the new entity. The other is strategic: determining the new entity's impact on the acquirer. Management needs clarity on how the newest acquisition changes its M&A strategy, organization structure, governance system, operational structure, systems and architecture, business processes, and sourcing strategy.
Then tactical integration planning can begin: creating an integration program and project management charter, determining the integration approach (centralized, federated or both), setting timetables, documenting and communicating assumptions and success factors, assigning roles and responsibilities, settling on service levels and detailing integration procedures. Here again a good playbook trumps risky improvisation.
Only then can acquirers with experience in traditional acquisitions confidently deploy their familiar integration playbook.