Communication, doc reviews key in M&As

Tony Moch

Strong communication with employees to ease uncertainty and ensure proper governance is essential in successful M&A transactions, said Tony Moch, Winthrop & Weinstine attorney. 

Moch, a presenter during the Bank Holding Company Association’s annual fall conference earlier this month, said Covid-19 caused banks to undertake more due diligence and ensure that fiduciary duties were properly taken care of. 

Moch listed a number of M&A fundamentals, including:

  • Keeping employees and customers aware of challenges. There are a number of ways organizations can keep their employees through a deal including adopting a stay-bonus program. Buyers desire more insight on the seller’s organization before finalizing M&A activity. In times of uncertainty, regulators focus more on potential issues and look to ensure that buyers have done their due diligence. 
  • Monitoring your organization’s best interests while complying with requirements. Bankers must show regulators how their organizations have stayed on top of problem assets. Also, banks must evaluate the impact of any material adverse challenges, how the seller’s standard operating policy matches the buyer, and employee compensation.  
  • Evaluating master purchase agreements and other governing documents. Bankers need to understand internal and external bylaws. Reviewing vendor contractors is also particularly essential if you time your deal with a termination period or if you have given advance notice but the deal takes longer than expected. Other necessary steps include deciphering breakup fees and walkaway clauses. 

During the early stages of Covid-19, uncertainty caused a sharp reduction in M&As, Moch noted. An infusion of government stimulus checks left banks shifting their focus to internal operations, further stunting M&A. Buyers are also informing regulators of their capital levels and how they plan to staff/manage the combined organization. 

More attention has been given to post-closing discussions, operating covenants and problem assets during the pandemic. Non-compete agreements, already sometimes disfavored by the courts, became even more difficult to follow with the onset of more remote work. More buyers are reaching out to key regulators to preview their M&A strategies and undertaking more due diligence, Moch noted.