Time to Sell Your Bank? Maybe. but Can You? Today's M&A Market Just Plain Stinks. in the Meantime, You Can Take Steps to Prepare for M&A's Rebound

Mary Lynn Lenz and her board faced a bittersweet choice. Lenz had arrived at 48-year-old Slade's Ferry Trust Co. five years earlier, from a large-bank background, and she had enjoyed the challenge of building up the Somerset, Mass., lender. Slade's Ferry, publicly traded, had grown to $605 million-assets with decent profitability. But she and the directors, strong believers in strategic planning, had come to a tough three-pronged fork in the road. Steady-as-you-go wouldn't work. Projections indicated that the sheer number of competitors would make the costs of growing by even 5% astronomical, says Lenz. Yet pulling back and maximizing profits on the book of business the bank already had wasn't too appealing, either. It wasn't really a good marketing strategy, says Lenz. Once you pull back, it's very difficult later on to push back in. That left the M&A route, with two prongs of its own: buying and selling. Only a handful of Massachusetts institutions would have made suitable targets, and none looked likely enough to bank on. For the sake of shareholder value, board and banker agreed, it was time to test the waters for sale, and the bank reached out to four prospective purchasers. In the end, Independent Bank Corp., parent of Rockland Trust Co., submitted the winning bid. deal was announced October 2007 and went live March 2008. The timing was perfect, says Lenz, because it was done before the market got tough. Lenz notes that the NASDAQ peer group for Slade's Ferry Bancorp had declined approximately 20% in the course of the deal. Had the bank remained independent, says Lenz, the company by now would have been trading below its book value. Stuck in no man's land Many boards entertaining similar discussions as those at the Slade's Ferry board can't currently do such a deal--they missed the boat. (We'll talk about how to get ready for the next round later.) desire is there, for certain. The $400 million-to-$1 billion category is 'no man's land', says Don Musso, FinPro, Inc., Liberty Corner, N.J. Below $400 million, he says, a bank can play the local relationship card quite happily, and above $1 billion, it can enjoy some economies of scale. In between, the company is neither one nor the other, and suffers the ailments of the extremes, according to Musso. However, thus far M&A volume for 2008 remains significantly off the pace for 2007. In the first quarter, only 42 bank and thrift deals were announced, versus 86 in the first quarter of 2007. Timing is everything, says John M. Eggemeyer III, a noted bank investor and rollup artist. Eggemeyer's Rancho Santa Fe, Calif., merchant banking firm, Castle Creek Capital, made a name for acquiring groups of banks into merged operations that could be later sold at a handsome profit. (See Patient Capitalist, ABA BJ, July 2006.) However, Eggemeyer has kept to the sidelines for about a year and a half. We saw the economy softening, he says, adding that even then, the way things have turned out defied his crystal ball. speed and depth of deterioration have made both buyers and sellers hold back. Sellers haven't adjusted their thinking to the reality of the economic situation that we're in right says Eggemeyer. As a result, there is a disconnect, he says, between what institutions are worth to buyers, and what their current managers, directors, and owners think they ought to be worth. In addition, Eggemeyer points out, many potential buyers hesitate to buy right now, given the potential for paying to own someone else's problems. Many bank managers are busy trying to deal with their own portfolios. We are in the slowest merger market since 1990, says Walter G. Moeling, IV, co-chair of the financial institutions group at Powell Goldstein LLP, Atlanta, Ga. The few deals that are being done are very specific. …