Mergers & Acquisitions

ALM First has created a 5 phase process to handle your merger from start to finish. That means we can help with the entire process, and have the expertise to handle not only the quantitative analysis, but also the qualitative aspects.

Phase 1 – Preparation

• The four primary activities in this phase focus on ALM First, educating the Client’s executive management team and board on the merger process, current trends and merger motivation, and ultimately creating a customized strategic merger plan for the Client.
• ALM First will identify merger candidates through a customized, qualitative, and quantitative questionnaire and analysis to determine fit and focus used to screen potential targets that conform to defined key target prospect criteria.

Phase 2 – Initiation & Structure

This phase mainly focuses on the qualitative aspects of a collaboration. ALM First will introduce and facilitate meetings with credible merger prospects on behalf of the Client based on Phase 1 results.

ALM First will:

• Initiate and participate in preliminary discussion with prospects to assess their level of interest and commitment to exploring merger discussions
• Actively facilitate meetings/discussions with a prospective partner(s) to explore a mutually beneficial collaboration
• Create an initial summary collaborative value proposition assessment/market intelligence report based on the initial vetting and exploring of a possible combination
• Provide other services as mutually agreed upon to assist the Client in meeting prospective candidates

Phase 3 – Transaction Analysis

• ALM First will provide guidance and support to the Client’s executive management team and board and Client’s third party professionals (e.g., Client accounting firm) in identifying both quantitative (e.g., financial) and qualitative (e.g., cultural aspects, etc.) factors that may hinder a successful collaboration.
• Combined ALM Analysis of the combined institution

Phase 4 – Definitive Agreements & Regulatory Approval

• ALM First will work with Client’s retained legal counsel in completing the definitive merger agreement along with applicable employment agreements.
• ALM First will conduct an initial analysis to determine, with Client’s legal counsel, whether the merger will require a Hart-Scott-Rodino antitrust filing with the Department of Justice / Federal Trade Commission.

Phase 5 – Closing & Integration

• Closing & Integration is the crucial stage in the process where all the work culminates into communication, member approval, and integration of the two organizations. This Phase includes five core areas of focus: Communication Planning and execution, Member Vote / Town Hall Meetings, Operational Integration: One-time License for method and tools, Operational Integration: Facilitation, and Technological Integration & Implementation

ALM First is experienced with CUSO valuations including such areas as insurance brokerages, FinTech, mortgage banking, and financial consulting.

ALM First has a document of questions useful for institutions to consider ahead of time. A few example questions include:

• What does it mean to you to be “the surviving entity”?
• How will your institution integrate different work cultures?
• Are you willing to give any board seats to the target?

ALM First would be happy to talk through additional considerations and potential opportunities. Contact us today to arrange a call.

A multitude of key measurements are necessary for a sound merger analysis:

• Fair valuation of financial assets, including investments and loans
• Fair valuation of financial liabilities, including deposits and borrowings
• Fair valuation of non-financial assets and liabilities, such as land and buildings
• Fair valuation of intangible assets, including core deposit intangible and mortgage servicing rights
• Fair market value of capital (the entity valuation)
• Determination of goodwill or negative goodwill
• Goodwill Impairment Testing
• Fairness Opinions

The MacroView Merger valuation can be used for discovery and planning purposes or as the initial step to securing regulatory approval to merge. In some instances, the Comprehensive Merger Valuation product is not required due to immateriality.

The Comprehensive Merger valuation solution is highly detailed and analyzes each loan at the individual level, providing items required under ASC 805. Many institutions choose to do an initial MacroView Merger in order to gain regulatory approval prior to merging and then complete the Comprehensive Merger valuation at the time of the merger. The ALM First merger valuation team can help institutions determine what type of merger is right for them.

ALM First is experienced with CUSO valuations and has performed several valuations on CUSOs over the last five years which consisted of insurance brokerages, FinTech, mortgage banking, and financial consulting.

ALM First utilizes a combination of discounted cash flow analyses (i.e., income-based approach) and comparable transactions (i.e., market-based approach).

The Discounted Cash Flow (DCF) analysis determines the value of the target assuming that the subject merger is not completed and that the target implements a stand-alone business plan for the commonly accepted five-year period and then enters into a control transaction at the end of the fifth year. The method calculates the target’s expected earnings stream over a 5-year time horizon and then discounts those earnings back to the present value at a particular discount rate.

ALM First reviews comparable transactions and evaluates pricing ratios (e.g., price-to-earnings, price-to-book, price-to-tangible book) and financial information for recent acquisitions of similar size, similar financial strength, and similar geographic areas. Qualitative adjustments are normally made to the pricing ratios to account for the key differences between the target and the companies included among the comparables group.

The ultimate valuation estimates derived under each method are reconciled and the fair market value of capital is determined.

Goodwill represents the difference between the entity’s fair value less the fair value of the identifiable tangible and intangible assets (i.e., the plug between assets and liabilities).

Goodwill is positive when the fair value of liabilities is greater than the fair value of assets received; positive goodwill represents the premium that an institution pays above the value of individual assets and liabilities. Positive goodwill must be tested for impairment on an annual basis or amortized on a straight-line basis. Goodwill is not impaired when the fair value of a reporting unit exceeds its carrying amount.

Over the last five years, roughly 80% of merger valuations performed by ALM First have resulted in bargain purchases. (A bargain purchase occurs when the fair value of assets is greater than the fair value of liabilities received.) Negative goodwill flows immediately to net income for a gain and no future impairment is required. Special rules do apply when calculating regulatory net worth.

During the recent downturn in the economy, many institutions acquired loan portfolios with deteriorated credit quality, and FAS ASC 310-30 accounting thus became more widespread. ALM First has performed valuations on several different distressed loan types. For example, ALM First recently valued several acquisitions where the target had a significant exposure to taxi medallions. ALM First can assist an acquirer with several options on how to unload taxi medallions loans.

ALM First has a document of questions useful for institutions to consider ahead of time. A few example questions include:

• How will your institution integrate different work cultures?
• Are you willing to offer higher deposit rates to the target depositors if their current rates are higher than your current rates?
• Are you willing to give any board seats to the target?

ALM First would be happy to talk through additional considerations and potential opportunities. Contact us today to arrange a call.

The answer is No. Leveraging an outside expert comes with the needs of the merger, organizations, size and planned outcomes. Having a good external team to plan critical pathways, compliment team talent, or provide that experiential reasoning certainly has it’s benefits however.

ALM First’s delivery methodology is called AFFIrM. The acronym stands for A Forward-Focused Integration Methodology. As a methodology we have a structure approach to guide and manage the various stages and Workstreams of an Integration program. While AFFIrM is fundamentally comprehensive does not mean that your Integration program has to be complicated. We kept in mind five tenets feeding not only the structure but also how AFFIrM works.

• Experience-Based: AFFIrM is built from knowledge gained over decades of Integration programs, and fused into the 80+ modern templates.
• Forward-Driven: Agile principles within AFFIrM execution model strengthen the momentum of activities and deliverables by team progress and a rigorous project plan.
• Highly-Modular: The AFFIrM framework allows the flexibility to meet the unique needs of your merger yet keep teams synched on the north star.
• Data-Powered: AFFIrM espouses a shift-left mindset for analytics to provide stakeholders with immediate feedback on key risk, issues, and goal progress.
• Outcome-Focused: Goals defined as part of the planning process have 30+ AFFIrM metrics for cultural guidance and operating processes that teams use toward value creation to enrich the member and employee experience.

The seasoned thinking and experience feeding this structure is paired with operational flexibility of your ALM First. Together, we work towards the realization of the benefits described in your merger agreement. These are the outcomes we work on together.

Although comprehensive, a light-touch version of AFFIrM was used on an $11B financial services merger. Several important precedents existed that should be noted:

• The acquiring institution was known to be a serial acquirer
• The in-house Integration team had tenured operational backgrounds
• The leadership cultures between organizations were match
• The new and common business goals were highly socialized
• Finally, the Integration kick-off had 100% attendance so everyone knew their part to play going forward.

AFFIrM was created with decades of experience and from dozens of programs. Yet, the major consideration from the beginning was to build it with flexibility and modularity in mind. What this means is we can pull in pieces of the framework that are unique to your Integration scenarios therefore creating a near bespoke program for you. Clients do not feel the burden of a rigorous, tight methodology. This was our first of two considerations.

Second, we use Agile principles and practices from software engineering such as Scrum. For example, our daily check-ins are far less of a painful 60 minutes walkthrough because we use automation to govern our Scrum-tyle standups. We schedule standups to be about 15 minutes with the explicit goal of answer: What did we accomplish? What is up next to accomplish? What, if any, blockers do we have?