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Creating a 'Win-Win' in M&A, Part I

November 11, 2014 in Economics

By John A. Allison

John A. Allison

Viewing life in partnership terms is a generally healthy perspective. Successful friendships, teams, marriages, civic organizations, and local communities all have partnership characteristics. The key to successful partnerships is focusing on making the relationship win-win. Obviously, sometimes creating win-win relationships is almost impossible. To the degree practical, win-lose or lose-win partnerships should be avoided because they are likely to fail.

During my tenure at BB&T, we executed over 100 mergers. We approached mergers as creating win-win partnerships, which is one reason practically all of our mergers were successful. It was our responsibility to analyze the facts thoroughly and objectively to be sure that a merger was in our constituents’, specifically our shareholders’, best interest. Secondly, we thoroughly analyzed why it was rational to believe a partnership with BB&T would be beneficial to the majority of the constituents of our potential merger partner.

Let me describe the merger process at BB&T. While this is a concrete example, hopefully you will see the general principle applicable to practically all cases of creating partnerships.

The first question to be asked is: Why are you interested in creating this partnership (or category of partnership)? In terms of bank acquisitions part of our motivation was that without the growth potential from mergers, we did not have the scale to be successful in a consolidating industry. We could have chosen to sell instead of grow. However, we were convinced that our culture and operating model were superior to that of the potential acquirers. Even though our shareholders would receive a premium on the front end, we would out earn the premium over time as an independent company. Also, given the characteristics of our shareholders, most would hold the acquirer’s stock for the long term, and we were not willing to effectively sanction the potential acquirer’s stock as a healthy long-term investment. This position turned out to be totally correct. Even shareholders who received significant front-end premiums but chose to hold the stock of Wachovia/First Union or Bank of America (who would have practically acquired BB&T) have been sorry.

A merger, like a marriage, should be entered into in the context of creating a successful long-term relationship.”

In the case of nonbank acquisitions, our motivation was to diversify our income stream to reduce risk. Most of our bank acquisitions were plain-vanilla companies with limited sources of revenues except from lending. This concentration of income from …read more

Source: OP-EDS

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