United States: Success And Failure In Bank Auctions: Part Two

Last Updated: February 28 2018
Article by J. Marc Ward

Last week we talked about a unique bidding process, which ended up being a success for the selling bank. This week we will look at an example of how not to conduct an auction.

Recently, after a more traditional auction process, the winning bidder began nitpicking the loan and investment portfolio. It wanted certain securities sold prior to closing and escrows set up for undesirable loans. After months of finagling, the deal died, and negotiations were initiated with the runner-up in the bidding. The lesson here is to know your weaknesses and be prepared to deal with them. Be strategic in the months leading up to the auction to eliminate loans or investments that may cause potential buyers to request price adjustments or reserves for risky loans or aggressive investments.

Today a bank that is interested in selling will typically consult with its lawyer or accountant, and an investment banking firm may be engaged to identify a list of possible candidates and inquire of them whether they would be interested in making a bid. Those who respond positively will be asked to sign a non-disclosure agreement (NDA) and then be given a bid package. The package will usually consist of selected financial statements, a summary of the loan portfolio and investment accounts, copies of key agreements such as data processing and employment agreements, and employee and executive benefit plans. Initial bids will be due within two or three weeks.

From this initial round of bids, the top ones will be invited to conduct due diligence. This might be on-site, at an off-site location such as a lawyer's office, or increasingly, through access to a data room on the internet. The opportunity to speak directly to bank personnel is allowed only late in the bidding process or prohibited altogether.

After the finalists have their due diligence opportunity, a second round of bids is requested. From these bids the successful bidder is chosen, although it is not unheard of to request a third and final round. From that point the typical selling process takes over with the signing of a letter of intent followed by the negotiation and signing of the acquisition agreement, the filing of regulatory applications and finally, the closing. The whole process can take six to nine months. The unsuccessful bidders will be told to stand by, in case an agreement with the finalist is not reached or the deal otherwise falls through.

The selling bank will not disclose the bids, but will likely keep the bidders in the dark as to where they stand relative to the other bidders, only telling bidders whether they are still in the running or out of luck. I'm not convinced that this secrecy generates the best bid. Before submitting a final bid, there is a lot of speculation by the finalists as to the strength of their bid, who might still be in the running and whether they should just sit on their bid or bid more. If they knew where they stood, higher bids might be generated from those who see the acquisition from a strategic point of view or those trailing behind who only need to push their bid a little bit to come out on top. High bidders may still sit on their bids or bid a little higher to keep themselves above the rest. However, there is also a risk that a high bidder will see that it bid way too much, based on the bids of its peers, and withdraw its bid. Given the aggressive pricing climate we have today, that risk is probably low, and transparency may very well be the best route to take.

Almost invariably the question comes up whether a bidder should make a preemptive bid, a bid so high that the seller agrees to stop the auction (a right always reserved to the seller) and agree to the preemptive bid. From the perspective of the bidder, so long as there are strategic reasons to make this bid and the pricing won't put too much strain on capital, go ahead and try it, but don't expect to succeed. From the seller's perspective, unless the preemptive bid is certainly higher than anything that can be expected from the auction, there is no reason to accept the bid, and the seller will know what at least one bidder is willing to pay. This could be useful information when promoting the bank before the beginning of future rounds.

A cautionary note on preemptive bids. Recently I was representing a selling bank that received what appeared to be a preemptive bid of nearly 2x book value. The seller was elated, nay ecstatic. But fortunately the seller did not treat the bid as preemptive but merely allowed the bidder to participate in the next round. After initial due diligence the bidder dropped its bid to less than 1x. And this wasn't the fault of the selling bank, other bidders stayed in and even increased their bids well over the 1x level. Keep in mind the adage: "If it is too good to be true, it probably is."

Takeaway: If you are thinking of selling your bank, carefully consider whether an auction or bidding process will best address your concerns and provide the best outcome.

To read Part One of this blog, click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Moritt, Hock & Hamroff LLP
In association with
Practice Guides
by Mondaq Advice Centers
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Moritt, Hock & Hamroff LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions