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Bank mergers and acquisitions fall apart for any number of reasons. Try doing one in a pandemic.
In March, Kenneth Mahon, CEO of $6.6 billion Dime Community Bancshares, was on the edge of announcing a major deal in the New York metropolitan area. His Brooklyn, New York-based executive team and that of $6.3 billion Bridge Bancorp in Bridgehampton, New York, had agreed to a $489 million merger of equals. Each had fully vetted the other’s balance sheets.
Then came the body bags. It was late March in New York City, which had become ground zero for one of America’s first Covid-19 death waves. Mahon remembers hearing the news that morgues were overflowing and body bags were being delivered to the city.
“We had a conversation in the next day or so about whether that was really the right time [to announce a deal],” he says.
M&A took a nose-dive in 2020, with only 112 announced deals – less than half of the announced deals from the year before, according to S&P Global Market Intelligence. That may be changing. Deal volume increased in the fourth quarter last year as stock prices improved and banks felt more comfortable about asset quality, which could lead to even more M&A ahead. But those who did get deals done during the pandemic learned a whole lot about remote consolidation and online negotiation, skills they were forced to learn quickly.
In Dime’s case, Mahon knew that putting a deal on hold is never a good thing. Rumors can spread and the news may leak, causing uncertainty among staff and impacting the value of the transaction. But this was not a good time to shake hands, in person or not. As the pandemic suspended life in New York City midstream, so it did the bank’s announcement.
It wasn’t until July that the two institutions announced the deal, after the exchange ratio of Dime stock to Bridge stock came back to the agreed upon 0.648%. Bridge CEO Kevin O’Connor will serve as CEO of the combined institution when the deal closes, which is expected within weeks. The merged banking company will have $11 billion in assets and go by the name Dime Community Bancshares. Mahon will serve as executive chairman.
Doing a deal remotely over video conferencing software hasn’t been easy. Mahon logs onto Zoom Video Communications meetings from a 400-square-foot studio apartment in Brooklyn. What is it like to build trust with a mask concealing your face? Not easy.
Mahon says he meets in person regularly with four other executives where they sit apart in a conference room and lift the masks. “Body language is important,” he says.
Curtis Carpenter, a senior managing director at investment bank Hovde Group, is amazed at how many executives and board members are still willing to travel to meet in person, jumping on private planes or flying commercially. He mostly serves banks in the Texas and Oklahoma region. One meeting was called off when one of the attendees got Covid. But mostly, people could still get together, he says.
“Everyone would wear a mask when entering the bank and when entering the conference room. In most cases, the mask would come off,” he adds. “It’s hard to have a discussion about buying and selling and executive contracts, of such an important personal nature; you want to see the person’s face.”
Others say they got a deal done without shedding the masks. “We were following appropriate safety measures,” says Keene Turner, executive vice president and CFO of $8.4 billion Enterprise Financial Services Corp. in Clayton, Missouri, which bought Seacoast Commerce Banc Holdings in San Diego for $169 million in November 2020.
The bank had already started discussions pre-pandemic with Seacoast. Executives knew each other, having first met attending a Bank Director conference years ago, Turner says. “That familiarity was built up over time,” he says. “In this case, we were comfortable with each other already.” The bank has gathered employees, all wearing a mask, to go over processes and procedures, but most meetings are remote.
Training new employees online is tricky – and so is data conversion. “It’s kind of like baptism by fire,” says Mark Tryniski, CEO of $13 billion Community Bank System in Dewitt, New York. “We had never done it that way.”
Tryniski says the bank used a lot of screen sharing and software collaboration tools in its merger with Steuben Trust Corp., which was completed in June 2020.
The pandemic created time delays and additional work for everybody.
Tupelo, Mississippi-based BancorpSouth Bank has managed two deal announcements during the pandemic. Dan Rollins III, chairman and CEO of the $24 billion bank, says his executive team ended up doing due diligence on a seller three times.
Several bankers say they think remote work is less efficient and that meetings take longer over video conferencing software, despite saving travel time. Most are eager to get back into the office again.
“If I had a choice, I wouldn’t choose to do a deal in a pandemic,” Mahon says. “It hasn’t been impossible. We have professionals who are getting it done.”