How To Buy A Bank?
MergersCorp™ M&A International is one of the most respected bank brokers in the business, and they can help you buy or sell bank businesses with complete confidentiality and privacy.
If you yearn to incorporate new ideas into the running of a banking organization, it is time to reflect on buying a bank. The acquisition process became easy, and the sector needs a serious new capital injection. Currently, the regulatory environment makes it more convenient to buy an existing bank than to start a new banking institution. The rest of this post tries to demystify how much money is needed to buy a bank and the key processes involved.
How much money is needed to buy a bank?
The cost of buying a bank will mainly depend on the total assets and liabilities of the bank in question as well as its profit ratios. The prices may vary significantly based on these and many other parameters in the banking industry. Typically, you will need to part with approximately $12 to $20 million when buying a bank. For new investors in the banking sector, the firm you will hire to carry out due diligence may charge some professional work fees.
You will also need to reach out to the regulatory authorities that govern the banking industry to assess the status, history, and compliance of the bank before you initiate the buying talks. The price of acquiring the bank will also vary if it has invested in heavily IT and other facilities that promote or facilitate its banking activities.
If the bank has assets, you will need to add their value to the base price and then deduct liabilities during valuation. The valuation process is more complicated than this approach, but it will give you invaluable clues of the overall cost you are likely to incur.
Buying a bank is quite an intricate process, but you need to have substantial capital with you for a seamless acquisition. Most of the intermediaries involved will request you to deposit some cash or give proof of funds for bidding into any transactions before proceeding to the sale negotiations.
It is crucial to view banks differently in the market because they also work differently. There are two significant matrices that help in valuing banks: price to tangible book and price to earnings. Small community banks are normally valued using tangible book value, while large banking institutions are valued based on their earnings.
How to buy a Bank?
Buying a bank may not be as simple as purchasing other companies. The regulations in the banking sector are strict, and the buying process needs the help of experienced lawyers, accounting, and strategic advisory team. The acquisition process will involve the following steps:
Identify a viable bank for sale
The first step into purchasing a bank is identifying a financial institution willing to surrender its market share due to distress or liquidity. Federal Deposit Insurance Corporation (FDIC) has made it easy for prospective investors to buy a failing bank before the regulator seizes it. If you find out that the bank struggles are exaggerated or assets improperly undervalued, you can inject your capital to save it from a downturn.
Carry out due diligence
You will need to hire an experienced team of experts to help you unearth the ins and outs of the bank you need to buy. The experts should help you to investigate the following:
• Audited financial statements for at least the last three years.
• Ensure they also assess the maturity, types, and terms of rates of all loans.
• The types of deposits and rates of breakdown
• The type of charter state, national or federal
• The description of customers and the list of shareholders
• Analyzing the CAMEL- Capital Management, Asset, Earning, Sensitivity, and Liquidity concerning market risks.
Negotiate a definitive agreement
It is prudent to initiate talks with the board members of the bank you intend to buy for a reasonable price. With the help of your experts, you may proceed to draft a definitive binding sale agreement.
Seek approval from regulatory authorities
When you are finally sure that you are done with the due diligence and signing the relevant agreements with the bank, it is the time to visit the banking sector regulator for approval. You will get the approval once you adhere to all set regulation requirements.
Fund the acquisition
The last bit is of the entire bank buying process is paying the agreed cash. If you had provided a deposit for a bid, you only need to clear the balance. You should only release the cash if you are sure that each of the parties have met the terms stipulated in the agreement.
Where to buy a Bank online?
If you want to buy a bank or invest in one, visit mergerscorp.com for excellent advice and investment recommendations. MergersCorp™ M&A International is one of the most respected bank brokers in the business, and they can help you buy or sell bank investments with complete confidentiality and privacy.
At MergersCorp™ M&A International we help our clients confidentially buy and sell privately held businesses, aligning the interests of all parties for mutual success and satisfaction.
About Stefano Endrizzi:
Mr Stefano Endrizzi is a serial entrepreneur, CEO, M&A advisor, senior business consultant and Referrer at Henley & Partners Switzerland.
He studied Law and later enrolled in the Lord Ashcroft International Business School (LAIBS), the business school of Anglia Ruskin University in Cambridge, United Kingdom.
Stefano hold a Master’s Degree in Business Administration (MBA), a Postgraduate Diploma in Business Strategy from the ABE (Association of Business Practitioners, UK) and many certifications in Mergers & Acquisitions, Assets Management, Digital Marketing and Project Management.