nCino IPO

nCino, a cloud-based technology and lending platform for banks, navigated the challenges of going public while working remotely. The firm’s success story speaks to the critical importance of digital transformations to the survival of any company, especially as the pandemic has changed consumer mindsets about delivery and the way banks approach their business.

nCino CEO Pierre Naudé virtually sat down with Bank Director CEO Al Dominick to share the lessons he took from the IPO experience and maintains the company culture now that it’s public. Banks can also hear about how nCino strengthened its board, and managed communications in the remote environment.

What’s Trending at Acquire or Be Acquired 2019

Smart Leadership – Today’s challenges and opportunities point to one important solution: strong boards and executive teams.
Predicting The Future – Interest is growing around mergers of equals, commercial deposits and shifting team dynamics.
Board-Level Concerns – Three characteristics define the issues facing bank directors.
Spotlight on Diversity – Diverse backgrounds fuel stronger performance.
Digging into Strategic Issues – The end of the government shutdown could yield more IPOs.

How To Prepare Compensation Plans For An IPO

IPO-11-5-18.pngThe decision to take your bank public will set the course of your company for years to come. There are several critical steps to prepare your compensation program before the IPO and before your bank is a public company.

Steps to prepare for the IPO

1. Assemble Your Compensation Team
Determine the team focused on compensation matters. If you have employees with IPO experience and compensation plans, they could be a key asset. Similarly, if you have employees without IPO experience but have public company experience, they could be a key team member as well.

2. Create Your IPO-Related Task List
Your bank may have implemented many compensation and governance related items already, but they should be reviewed for their appropriateness for a public company.

Key tasks required prior to the IPO will vary, however, here is a list of compensation tasks on every pre-IPO list.

  • Develop an executive compensation philosophy and key objectives – What is your bank’s strategy? Where do you target compensation? Is your pay aligned with performance? What are the objectives of your compensation program? What message do you want to send to shareholders? Craft overarching guidelines to support the process going forward.
  • Evaluate and establish appropriate executive and director compensation levels – Prior to the IPO, your company will have to disclose its executive and director compensation. You want to be sure your compensation programs are reasonable, competitive, and based on peer group data. Establishing a suitable peer group and incorporating the data into your process is key.
  • Equity plan considerations – Will a new equity plan be required, and when will you need shareholder approval? How will you determine the share pool so long-term incentive and equity grant needs can be met for three to five years? Have you evaluated the shareholder advisory firms’ current standards to receive favorable support? Avoid any pitfalls that would result in a “no” vote recommendation.

    If the company is considering one-time IPO-related equity grants, evaluate these in light of market trends, shareholder expectations, retention concerns, financial impact to the company and dilution. Many institutions consider sizeable one-time grants a front-loaded award, and decide to wait before awarding additional equity. Such decisions are based on share pool impact, financial implications, and size of the one-time grants. Carefully determine the value of these awards to minimize risks of unfavorable optics and legal actions.

  • Design ongoing annual and long-term incentive plans – As a public company, it is important to have annual and long-term incentive plans that align pay and performance, are competitive, consistent with company objectives and provide an appropriate mix of pay. As new incentive plans are designed, know that plan details will be disclosed in future public filings. Private banks are accustomed to implementing plans that are regulatory compliant and competitive, but public disclosure has not been required.
  • Implement executive agreements – In many cases, new employment and change-in-control agreements are put in place, often the case even if similar agreements were in effect before the IPO. Several details, including the terms, are subject to public disclosure. Shareholder advisory firms take issue with certain terms and, and having them can automatically result in ‘no’ vote for Management Say on Pay and the re-election of the board’s compensation committee. It is critical to be aware of these pitfalls and avoid them whenever possible.

3. Determine appropriate technical and governance actions
There are key technical and governance issues to evaluate. Some items are required while others are not. Many are considered best practices and important to achieving strong governance. Some of the key items in this category include:

  • Drafting of the SEC required filings including the CD&A (Compensation Discussion and Analysis), compensation tables and other requirements. Reporting errors and omissions can delay the IPO.
  • Determining company stock ownership guidelines – Many new public banks do not adopt stock ownership guidelines immediately, however, if one-time equity grants are awarded, adopting such guidelines immediately sets the parameters for holding these shares. Determine who will be covered by the guidelines (e.g., executives, Section 16 officers, non-employee directors), what the required holdings are, the timeframe permitted, and other terms.
  • Drafting the Compensation Committee Charter – A charter establishes the role and responsibilities of the committee, how it will interact with the board and management, and its ability to engage outside advisors. The charter is typically published on the company’s website.

4. Create a compensation committee calendar after the IPO
Once the IPO is completed, it is important for the compensation committee to focus on its new role, responsibilities and annual tasks. Setting up a calendar of activities supports effective management and should include all areas of committee oversight.

Taking your bank public can be a very exciting endeavor. Do not underestimate the number of new issues management, the compensation committee and the board will have to become familiar with to complete a successful IPO and operate a public company. Being organized, having the right knowledge and support and a flexible timeline will be great tools to help your organization get through this process.

Are the Ducks Quacking?

IPO-5-17-18.pngAn initial public offering isn’t the only path to listing your bank’s shares on the Nasdaq or New York Stock Exchange, and gaining greater liquidity and more efficient access to capital via the public markets.

Business First Bancshares, based in Baton Rouge, Louisiana, opted for a direct listing on the Nasdaq exchange on April 9, over the more traditional IPO. Coincidentally, this was the same route taken a few days prior—with greater fanfare and media attention—by Swedish entertainment company Spotify. A direct listing forgoes the selling of shares, and provides an instant and public price for potential buyers and sellers of a company’s stock.

Business First’s direct listing could be seen as an IPO in slow motion. The $1.2 billion asset company registered with the Securities and Exchange Commission in late 2014, ahead of its April 2015 acquisition of American Gateway Bank. Business First then completed a $66 million private capital raise in October—$60 million of which was raised from institutional investors—before acquiring MBL Bank in January. The institutional investors that invested in Business First last fall did so with the understanding that the bank would be listing soon. “We actually raised money from the same people as we would have in an IPO process,” says Chief Executive Officer Jude Melville.

Melville says his bank took this slow route so it could be flexible and take advantage of opportunities to acquire other banks, which is a part of the its long-term strategy. Also, bank stocks in 2015 and 2016 had not yet hit the peak levels the industry began to see in 2017. The number of banks that completed an IPO in 2017 more than doubled from the prior year, from eight to 19, according to data obtained from S&P Global Market Intelligence.

“The stars aligned in 2017” for bank stocks, says Jeff Davis, a managing director at Mercer Capital. The Federal Reserve continued increasing interest rates, which had a positive impact on margins for most banks. Bank M&A activity was expected to pick up, and the Trump administration has appointed regulators who are viewed as being friendlier to the industry. “There’s a saying on Wall Street: When the ducks are quacking, feed them, and institutional investors wanted bank stocks. One way to feed the ducks is to undergo an IPO,” Davis says. Bank stock valuations are still high, and so far, 2018 looks to be on track for another good year for new bank offerings, with four completed as of mid-April.

The more recent wave of bank IPOs, which had trailed off in 2015 and 2016, was largely a result of post-crisis private equity investors looking for an exit. As those investors sought liquidity, several banks opted for life as a public company rather than sell the bank. That backlog has cleared, says Davis. “It’s still a great environment for a bank to undergo an IPO,” he says. “Particularly for a bank with a good story as it relates to growth.”

The goals for Business First’s public listing are tied to the bank’s goals for growth via acquisition. Private banks can be at a disadvantage in M&A, having to rely on all-cash deals. A more liquid currency, in the form of an actively-traded stock, is attractive to potential sellers, and the markets offer better access to capital to fuel growth. Melville also believes that most potential employees would prefer to work for a public versus a private company. “Being publicly traded gives you a certain stability and credibility that I think the best employees find attractive,” he says.

Business First’s delayed listing was a result of leadership’s understanding of the seriousness of being a public bank, and the management team focused on integrating its acquisitions first to be better prepared for the listing.

“You really have to want to be a public company and make the sacrifices necessary to make that possible,” says Scott Studwell, managing director at the investment bank Stephens, who worked with Business First on its pre-public capital raise but not its direct listing. “There has to be a lot of support for doing so in the boardroom.” The direct preparation for an IPO takes four to six months, according to Studwell, but the typical bank will spend years getting its infrastructure, personnel, policies and procedures up to speed, says Lowell Harrison, a partner at Fenimore, Kay, Harrison & Ford. The law firm serves as legal counsel for Business First. Roadshows to talk up the IPO and tell the company’s story can have executives traveling across the country and even internationally.

And the bank will be subject to Wall Street’s more frequent assessment of its performance. If a bank hits a road bump, “it can be a rough go for management in terms of looking at the stock being graded by the Street every day, not to mention all the compliance costs that go with being an SEC registrant,” says Davis. All of this adds more to the management team’s plate.

Considering a public path is an important discussion for boards and management teams, and is ultimately a strategic decision that should be driven by the bank’s goals, says Harrison. “What is the problem you’re trying to solve? Do you need the capital? Are you trying to become a player in the acquisition market? Are you just simply trying to create some liquidity for your shares?” Filing an IPO, or opting for a direct listing, should check at least two of these boxes. If the bank just wants to provide liquidity to its shareholders, a listing on an over-the-counter market such as the OTCQX may achieve that goal without the additional burden on the institution.

In considering the bank’s capital needs, a private equity investor—which would allow the bank to remain private, at least in the near term—may suit the bank. Institutional investors favor short-term liquidity through the public markets, which is why Business First was able to obtain capital in that manner, given its near-term direct listing. Private equity investors are willing to invest for a longer period of time, though they will eventually seek liquidity. These investors are also more actively engaged, and may seek a board seat or rights to observe board meetings, says Studwell. But they can be a good option for a private bank that’s not ready for a public listing, or doesn’t see strategic value in it.

Though Business First’s less-common path to its public listing is one that could be replicated under the right circumstances, the majority of institutions that choose to go public are more likely to opt for a traditional IPO. “The reality is that direct listings are very rare, and it takes a unique set of circumstances for it to make sense for a company,” says Harrison. While a direct listing provides more liquidity than private ownership, be advised that the liquidity may not be as robust as seen in an IPO, which tends to capture the attention of institutional shareholders. “Usually, it’s the actual function of the IPO that helps kickstart your public market activity,” he adds. And if the bank needs an injection of capital—and determines that a public listing is the way to do it—then an IPO is the best strategic choice.

Key Trends & Topics in 2016

Small and midsized banks should continue to outperform the market, but “challenger banks” are positioned to take on even more market share. Tom Michaud, president and CEO of Keefe, Bruyette & Woods, identifies these “challenger banks,” which include innovators such as Silicon Valley Bank and Opus Bank, growing due to a focus on technology and niche expertise, and strong performers such as Bank of the Ozarks and Pinnacle Financial Partners, more traditional models with strong cultures that attract talent. Speaking to the audience at Bank Director’s 2016 Acquire or Be Acquired Conference, Michaud outlines expectations for the industry in 2016, including exposure to commercial real estate, a receptive IPO market and whether we’ll see more partnerships between banks and fintech companies.

Highlights from this video:

  • Current State of the Banking Industry
  • 2016 Banking Outlook & Emerging Trends
  • The Rise of Challenger Banks
  • The IPO Market for U.S. Banks
  • Fintech Partnerships
  • Consolidation Trends

Does Market Volatility Impact Bank M&A?

While the volatility in the stock market garners the attention of investors, it is also a worrisome topic for bank boards. As the Federal Reserve considers its first rate increase in close to 10 years—and China’s growth outlook continues to wane and impact economies around the world—bank boards have to consider the impact on their growth strategies, including any planned capital raises, IPOs or mergers and acquisitions.

Certainly, unexpectedly large swings in daily share prices make it difficult to price a potential M&A deal. This comes in an environment where bank M&A volume has not increased much, if at all, depending on how you look at the numbers. As you can see in the chart below, we have had just 34 deals with a value of more than $50 million year to date through Sept 7, 2015, which puts us slightly below the rate of 2014, according to Mark Fitzgibbon, a principal and the director of research at investment bank Sandler O’Neill + Partners.

Most bank deals are smaller than $50 million in value, however. In an upcoming article for, Crowe Horwath LLP, a consulting and accounting firm, looked at all deal volume through June 30, 2015, and found 140 deals, slightly above last year’s volume in the same time frame of 130 deals.

Clearly, the lion’s share of the transactions has been small bank deals, and we have not seen many large transactions this year. Fitzgibbon is of the opinion that there are three dynamics that have slowed the pace of consolidation: (a) recent market volatility makes it tough to price deals, (b) large banks have generally been more internally focused than M&A focused, and (c) regulators have been slow to approve some deals, giving pause to some buyers.

This complements the perspectives of Fred Cannon, executive vice president and global director of research at Keefe, Bruyette & Woods, who reminded me that the pace of M&A “is simply a lot slower than it was prior to the crisis, and those of us who remember pre-crisis M&A, it will likely never be the same. We don’t have national consolidators buying up banks, and regulation does not allow the same speed of consolidation we previously had.”  In Cannon’s words, “volatility certainly slows deals a bit, but it postponed deals rather than stopped them.”

Contrast that with initial public offerings, which can really take a beating in a volatile market. Depending on the market and the individual bank’s potential value, it may no longer make sense to price an IPO, or it may make sense to delay it.

Here, I agree with Cannon’s assertion that a weak market is “more detrimental to IPOs than M&A. With M&A, the relative value of the buyers’ currency is often more important than the absolute level.” So if values fall for both the buyer and seller, the deal may still make sense for both of them. For potential deal making, market volatility is rarely good news, but it may not be as bad as it seems.

What to Expect in 2015 for M&A

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 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.

The IPO Market is Red Hot. What’s Driving It?

The market for bank initial public offerings (IPOs) has become scorching. In fact, through the first three quarters of this year, nine initial public offerings of commercial banks have been successfully completed. Based on the current pipeline, this year will mark the most bank IPO activity in the last decade.


Source: SNL Financial; Year-to-date through September 30,2014

During September, Citizens Financial Group Inc. (NYSE: CFG) completed the largest bank IPO on record, at $3.4 billion in gross proceeds. To put the size of this offering into perspective, the second largest offering this year was approximately $232 million for Talmer Bancorp Inc.

Given the active IPO market, bank directors and investors alike have asked us: What has spurred the pick-up in IPOs? What characteristics do great IPO candidates have in common? Are there more to come? Will this have an effect on M&A activity? To shed some light on these, we will address each question.

What Has Spurred the Pick-Up in IPOs?
A number of factors that have contributed to or helped facilitate the pick-up in activity such as higher valuations, the emerging growth company provisions in the JOBS Act, the need to repay Troubled Asset Relief Program money or another form of capital, as well as supportive capital markets. Bankers have referenced a combination of pent-up demand for liquidity from some shareholders and the need to fund future growth. Going public provides shareholder liquidity for those who want it while allowing management teams and committed investors alike to continue to pursue the long-term strategic plan. Furthermore, having access to the public markets is a significant advantage for growth-minded companies regardless of whether the growth is organic or through acquisitions. 

Characteristics of Good IPO Candidates
So what makes a good IPO candidate?

  • Management: Investors are interested in banks led by an exceptional management team with a proven track record.
  • Size: While a few have fallen outside of the range, most banks are between $1 billion to $5 billion in assets at the time of their IPO. 
  • Profitability: Investors want to see both a solid profitability trend and earnings growth— top line growth while managing expenses to improve the bottom line.
  • Clean balance sheet: Especially at this point in the cycle, balance sheets should be in good shape.
  • Growth: A growing bank in a high-growth market is the ideal situation, but solid growth prospects are  key, whether organic or through acquisition opportunities.

Are Rising Valuations Justified?
While IPO valuations are up on average, the pricing of recent deals has been reasonable relative to the valuations of similar public banks. For example, of the thirteen banks that have completed an initial public offering during the last two years, nine of these were within $1 billion and $5 billion in assets at the time of their IPO. Three of the four others were within $350 million of this size range with Citizens Financial Group being the exception. We analyzed all publicly traded banks in this size range and found that the group currently trades at approximately 163 percent of tangible equity, which supports the pricing of recent offerings. Interestingly, banks in this size range are currently trading close to the same multiples they traded at roughly three and a half years ago; however, they have returned over 51 percent on average to investors during this same period.


Source: SNL Financial; Data from 1/3/2011-9/29/2014

Will This Affect M&A Activity?
Issuing stock in a merger or acquisition helps a buyer achieve the higher capital levels that regulators want on a pro forma basis while helping to ensure attractive payback periods for investors. In fact, during the past two years approximately 86 percent of deals where the purchase price was $25 million or more have included stock as a portion of the consideration. Accordingly, the majority of banks that have completed an IPO this year have stated the intent to evaluate acquisition opportunities.

We expect this pick-up in IPOs to continue into 2015. Furthermore, we expect this trend to drive more M&A activity as well. Current valuations are drawing more banks to access the public markets and investors are interested in profitable institutions with compelling growth prospects. Many of these newly public banks intend to pursue acquisitions which will be conducive to continued consolidation throughout the banking industry. Accretive acquisitions are a catalyst supporting higher stock prices for the buying banks, which will serve to further lure more growth-minded bankers to consider an initial public offering.