Disney’s Lesson for Banks

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When Robert Iger became The Walt Disney Co. CEO in 2005, the company’s storied history of animation had floundered for a decade.

So Iger turned to a competitor whose animation outpaced Disney’s own and proposed a deal.

The relationship between Pixar Animation Studios and Disney had been strained, and Iger was nervous when he called Pixar’s CEO at the time, Steve Jobs. The two sat down in front of a white board at Pixar’s headquarters and began listing the pros and cons of the deal. The pros had three items. The cons had 20, as the now-retired Iger tells it in his Masterclass online.

“I said ‘This probably isn’t going to happen,’’’ Iger remembers. “He said, ‘Why do you say that?’”

Jobs could see that the pros had greater weight to them, despite the long list of the cons. Ultimately, Disney did buy Pixar for more than $7 billion in 2006, improving its standing, animation and financial success. In the end, Iger says he “didn’t think it was anything but a risk worth taking.”

I read Iger’s memoir, “The Ride of a Lifetime,’’ in 2021, just as I began planning the agenda for our annual Acquire or Be Acquired Conference in Phoenix, which is widely regarded as the premier M&A conference for financial industry CEOs, boards and leadership teams.

His story resonated, and not just because of the Disney/Pixar transaction.

I thought about risks worth taking, and was reminded of the leadership traits Iger prizes — specifically, optimism, courage and curiosity. Moreover, many of this year’s registered attendees wrestle with the same issues Iger confronted at Disney: They represent important brands in their markets that must respond to the monumental changes in customer expectations. They must attract and retain talent and to grow in the face of challenges.

While some look to 2022 with a sense of apprehension — thanks to Covid variant uncertainty, inflation, supply chain bottlenecks and potential regulatory changes — I feel quite the pep in my step this January. I celebrate the opportunity with our team to return, in-person, to the JW Marriott Desert Ridge. With over 1,350 registered to join us Jan. 30 through Feb. 1, I know I am not alone in my excitement to be again with people in real life.

So what’s in store for those joining us? We will have conversations about:

  • Examining capital allocation.
  • Balancing short-term profitability versus long term value creation.
  • Managing excess liquidity and shrinking margins.
  • Re-thinking hiring models and succession planning.
  • Becoming more competitive and efficient.

Naturally, we discuss the various growth opportunities available to participants. We talk about recent merger transactions, market reactions and integration hurdles. We hear about the importance of marrying bank strategy with technology investment. We explore what’s going on in Washington with respect to regulation and we acknowledge the pressure to grow earnings and the need to diversify the business.

As the convergence of traditional banking and fintech continues to accelerate, we again offer FinXTech sessions dedicated to delivering growth. We unpack concepts like banking as a service, stablecoins, Web3, embedded finance and open banking.

Acquire or Be Acquired has long been a meeting ground for those that take the creation of franchise value very seriously — a topic even more nuanced in today’s increasingly digital world. The risk takers will be there.

“There’s no way you can achieve great gains without taking great chances,’’ Iger says. “Success is boundless.”

What to Expect in 2015 for M&A

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1-16-15-Al.pngFrom the strategies and mechanics behind a transaction to the many lingering questions regarding industry consolidation, regulatory burdens and how to build long-term value, Bank Director’s Acquire or Be Acquired Conference Jan.25-Jan. 27 (affectionately known as AOBA) provides officers and directors with three days to explore acquisition strategies and financial growth options with their peers.

Now, I am not one to ignore the past when preparing for the future. One of the common themes from last year’s conference was that many bankers attending the conference were looking to cure profitability challenges through some kind of merger or acquisition activity. In addition, some of the trends I took note of were, in no particular order:

  • Many CEOs were sweating margin compression, efficiency improvements and business model expansion in the context of their current environment;
  • Numerous statistics and financial models made clear that larger banks benefit from “economies of scale” in terms of better profitability and higher stock values than smaller banks;
  • Most investors want to invest in buyers, not try to pick the sellers;
  • The Bank Secrecy Act (BSA) and anti-money laundering issues derailed and/or prevented quite a few deals from ever seeing the light of day; and
  • The term “merger of equals” may be a misnomer; however, there were real benefits of a strategic partnership between similar-sized banks looking to stay relevant and achieve scale.

So as the clock ticks closer to this year’s program, allow me to share what I anticipate at AOBA. Many of the regulatory hurdles to deals and enhanced regulatory scrutiny remain in place. With increased scrutiny of deals at the regulatory level, I will be particularly interested to hear how various CEOs prepare their board for dealing with regulators, shareholders and management, all while managing the numerous professionals involved in an M&A deal (e.g. the lawyers, accountants, and investment bankers).

Yes, the benefits of economies of scale will continue to drive consolidation going forward. Nonetheless, I do not think mergers of equals will be as much of a focus of the conference as last year. Instead, I anticipate more conversations about public offerings as stock values increase and investors become friendlier to banks. One bank CEO who is scheduled to speak at the conference, Independent Bank Group’s David Brooks, had a successful IPO that exceeded expectations. To this end, as 2014 was the year of the IPO, 2015 might well follow suit.

Likewise, I know many potential acquirers are keen to limit market risk and are interested in learning how some of the more successful acquirers of late have managed (think ConnectOne Bancorp in Englewood Cliffs, New Jersey, and IBERIABANK Corp.in Lafayette, Louisiana, to name a few banks sending CEOs to AOBA).

Whether it is making the hard decision that now is the time to sell or buy another bank to improve operating leverage, earnings, efficiency and scale, I know that the 510+ bank CEOs, chairmen and board members that have already registered to join us at The Phoenician hotel in Scottsdale, Arizona, will be challenged by their peers to re-think what’s possible in 2015.