Merger and acquisition issues facing your board of directors In these troubling economic times, when many financial institutions are reconsidering their strategic and capital plans as well as their near- and far-term forecasts, your board may be ready to convene for its semi-regular "Buy, Sell, or Hold" summit as part of its strategic planning.

The banking industry may see profound change in the coming years. With so many small banks formed recently, some without effec- tive long-term strategies, there will likely be an intriguing pool of talent and customers for well-managed community banks with sustainable strategic plans. A strategic acquisition gives the combined enterprise an op- portunity to differentiate itself from a pack of smaller community banks in terms of size, products and geographic scope.

While there is no short or simple template for completing a successful strategic transaction, here are some of the critical issues that your board must consider thoroughly as part of any transaction, and buying or acquiring in particular.

Preparing

When your board enters into its "Buy, Sell, or Hold" discussions, you will be faced with the dozens or even hundreds of issues that inform such an important decision. The discussions should start with a review of the bank's existing strategic plan and most likely a current update of that plan to address today's challenging economic climate and your bank's prospects for success in both the short- term and long-term.

You then must decide whether a purchase, sale or merger transaction fits in with your strategic plan. Some aspects of your strategic plan that may bear inspection include:

* Do you have adequate capital for an acquisition transaction?

* Do you have adequate capital to continue with the current operation?

* Which is more consistent with the plan: instant or organic growth?

* How strong is the lure of instant access to new markets, customers, talent and products?

* What is the best way to deploy any excess capital?

Once your board has determined that the bank may be for sale, or that it is time to accelerate the institution's growth with a strategic acquisition, what do you do next?

The first step in consideration of strategic alternatives is to assemble your transaction team. It is not practical, nor is it advisable, for the entire board to become involved in or overwhelmed by all of the potential issues inherent to a strategic transaction. Instead, very early in the process, if not at the outset, the board should assemble its team, which will help to maintain internal confidentiality. The team is typically comprised of several professionals with specialized skills.

The strategic planning committee of the board: Those selected to serve on the committee must be willing to devote the necessary time and effort to work through and understand the minutiae of the potential transaction and be prepared to report to the full board.

An investment banker: The board should consider whether it wishes to engage the services of an investment banker to work with the bank to identify likely candidates for a strategic transaction and to provide the board with a fairness opinion to help satisfy the board's fiduciary obligations to its shareholders to negotiate a fair price. Once the decision to engage an investment banker is made, you will need to decide whether a national, regional or local i-banker best suits your needs and then determine the terms of the engagement.