How to buy a bank has never been an easy feat. It takes months of negotiations and evaluations to identify a target institution. But with careful planning through the help of an advisory team, you reap abundant benefits of investing in an American bank. If you are considering purchasing a bank for sale there are various phases you need to understand. In this post, we have summed up the 5 Essential Steps To Buying A Bank.
Assemble Your Team
You need a team of experts including lawyers to guide you through the transactions. Get financial advisors to review the agreement so you don’t misinterpret facts and figures from the seller. A Certified Public Accountant can help you better with tax planning, due diligence review, cash flow projections, business valuations, and bank valuation. Understand the most appropriate financing options and repayment terms.
2. Write Down Your Goals
Are you planning to add a new financial product to appeal to a wider customer base? Or do you want to venture into completely new markets? Your goals should answer the question of ‘why invest in a bank?’ When your ‘why’ is clear, only then can you create a business plan. Then you can start looking for employees and changing the operations as needed. Define your goals beforehand so you can focus on the opportunities with the exact features you are looking for. You need to create a workforce culture that aligns with those objectives.
3. Due Diligence
Even if the bank on sale has audited the financial statements, you cannot just rely on their reports. It is imperative that you carry out your due diligence to know the accounts collectibles, receivables, fixed assets, and other inventories. Find out if the bank has complied with tax filing. Due diligence also touches on the operations of the organization. Look at the qualitative issues around the financials. The earning history should explain how well the bank has been performing and its sustainability in the future. Be very keen on peculiar trends, transactions with certain entities, non-recurring expenses, and a change of accounting methods.
4. Negotiation Around the Buying Price
Negotiating a contract is not all about the agreed-upon value of the bank. The terms of payment can have significant effects during closing. Rarely will you be asked for cash upfront. It is good to use an escrow company to protect you as the buyer in case of any pending litigations, tax issues, misinterpretations of statements, and capital adjustments that come after closing.
After negotiating and finally signing the deal, you buy a bank through funding. Will you be using personal funds or a pool of money from a number of investors? Work with a financial advisor to determine how much capital is available as well as the repayment schedule. If the seller is financing a certain percentage, they might give favorable terms and repayment periods. A successful bank purchase also means satisfaction to the seller because they will be fully paid. Apart from funding the purchase, plan for extra investments that follow closing. Perhaps the capital equipment needs replacement or there is a need for new software.
Hence, these were the 5 essential steps to buying a bank.
How MergersCorp Can Help?
Not sure exactly where to buy a bank? Come to MergersCorp™ M&A International for professional assistance. We have helped thousands of investors acquire and merge big businesses including American banks. Contact us at https://mergerscorp.com/ and let us know your goals. Talk to as if you want to sell the business anonymously.