Getting Involved in the Business Transition Process

How many times have you been caught off guard when one of the bank’s largest clients calls to give you a heads up that they are selling their business, and your mind probably goes right to the thought, “How am I going to replace this loan volume?”. Followed closely by the thought, “Wow – why didn’t the client ask for my advice or involvement in the process?”

You are not alone. Clients often enlist the help of an attorney or accountant long before (and sometimes exclusively) anyone else in the business transition process. Perhaps they are concerned about alarming their credit provider due to underwriting or negotiating leverage concerns. A more proactive stance by the high performing community banker can benefit your client and your bank. Below are three factors bankers should consider:

Elevate your Standing as a Trusted Advisor/Value Provider

There are many providers of credit and deposit services – and they mostly look alike to customers. It takes an intentional commitment to provide value in the form of pragmatic tactics and connection to resources. For instance, have you sponsored a transition planning seminar with a panel including an attorney, accountant, investment banker and financial advisor (likely one of your employees). Proactively bringing this conversation to your clients insures your seat at the table as strategic discussions begin.

Provide more Sophisticated Financing Alternatives

Most people assume transition planning means selling a business to a third party when the owner is ready to retire. While that may be the case, it might also mean a management buy-out of the founder or a recapitalization strategy that pays a dividend to the owner who uses it to fund trust accounts for family members. Community banks could play a part in any of these strategies, and should most certainly be aware of the structure and mechanics at a minimum.

Acquisition loans are sometimes troublesome for banks to underwrite due to the “blue-sky” portion of the request not backed by traditional collateral. An SBA guaranty is a well-known solution, but there are also mezzanine lenders that provide additional debt that may be more flexible and user-friendly. These lenders are happy to work with a local bank leading the deal. Further, in the dividend recapitalization scenario, there are debt providers that will partner with a community bank to provide higher leveraged loans with no expectation or desire for other ancillary services. Thus, teaming up with an alternate capital provider can fend off competition from large national players.

 Capture more Bank Deposits or Assets Under Management

Bank clients are typically more apt to reexamine their vendor relationships during major transactions (expansion, new building, acquisition). If your client doesn’t know that you are well-educated and well-connected in the business transition space, they might be introduced to larger organizations to handle their transaction and ultimately be sold on the thought of that larger organization handling all of their financial service needs post-transaction. By proactively inserting yourself into the discussion through client education efforts, you are more likely to avoid that scenario. It is likely that your client would be happy to place their newfound liquidity with a trusted relationship who helped them through the process.

In summary, the bank that 1) Makes the commitment to educate its team on the process and resources available in the business transition arena; and 2) Takes the initiative to be a part of the client’s planning/deal team, will no doubt outshine their competitors in growing business and retaining long-standing relationships.

For more information, contact Gary Grote at Bridgepoint Merchant Banking; 402-817-7940 or ggrote@bridgepointmb.com. Bridgepoint helps lower and middle market businesses (including banks) sell or raise capital. Gary spent 23 years in community banking prior to his role as Managing Principal at Bridgepoint.