I recently wrote How the Math Works For Non-Financial Service Companies. Keeping to the quantitative side of our business, I’m finding more and more advisors opining that banks of $500 – $600M in asset size really need to think about how to get to $2B or $3Bn — and when they get there, how to get to $7Bn, $8Bn and then $9Bn. With organic growth being a bit of a chore, mergers and acquisitions remain a primary catalyst for those looking to build. But what happens if you don’t have a board (or shareholder base for that matter) that understands what it takes to grow a company through acquisitions? This question — not deliberately rhetorical — and two more observations, form today’s post.
A Collection of Individual Relationships
Just because a bank is in a position to consider a merger or acquisition doesn’t mean it is always the best approach to building a business. This thought crossed my mind with Nashville-based Pinnacle Bank’s recent acquisition of Chattanooga’s CapitalMark Bank & Trust — the first deal struck by the bank in the last eight years (h/t to my fellow W&L’er Scott Harrison at the Nashville Business Journal for his writeup). Run by Terry Turner, the bank enjoys a great reputation as a place to work and business to invest in. As Terry shared with the audience at this year’s Acquire or Be Acquired conference, he doesn’t hire someone who’s been shopping their resume, a point that stuck with me and resonated with a number of other executives I was seated near. So when I think of team building, his institution is one I hold in high regard.
The same can be said for First Republic, who like Pinnacle, is known for organic growth and fielding a standout team. The bank recently posted a 90 second video from its CEO and Founder, Jim Herbert, that gives his thoughts on culture and teamwork. Having written about Jim as part of a “Best CEO” series, this clip highlights the foundation for their continued success.
General Electric decides it no longer needs to be a bank
If you somehow missed GE’s announcement, the Wall Street Journal reported this is the conglomerate’s most significant strategic move in years. While I will let others weigh in on the long-term benefits in selling its finance business that long accounted for around half the company’s profits, it was nice to see our friends at Davis Polk advising GE through the sale of most of GE Capital’s assets. So the assets of the 7th largest bank in the country, some $500 billion in size, will be sold or spun off over the next two years. Why? “The company concluded the benefits aren’t worth bearing the regulatory burdens and investor discontent.” Feel free to share your comments on this below.