Creating a 'Win-Win' in Bank M&A

John A. Allison led BB&T Bank for almost 20 years. During this time BB&T executed over 100 mergers.

He was recognized by the Harvard Business Review as one of the top 100 most successful CEOs in the world over the last decade, and John was one of four finalists for Morningstar's 2008 CEO of the Year.

This is why a series of American Banker articles from Allison got my attention:

• Creating a 'Win-Win' in M&A, Part I: BB&T Alum John Allison's Logic for Deals
• Creating a 'Win-Win' in M&A, Part II: BB&T's Approach to Negotiation, Integration
• Creating a 'Win-Win' in M&A, Part III: BB&T Alum John Allison on Selling A Deal
• Creating a 'Win-Win' in M&A, Part IV: BB&T's Strategy for Buying Nonbanks
• Creating a 'Win-Win' in M&A, Part V: How BB&T Guarded Against Hostile Bids

These are part of Allison's The Leadership Crisis and the Free Market Cure: Why the Future of Business Depends on the Return to Life, Liberty, and the Pursuit of Happiness. 

Below are some of my favorite excerpts:

Part I: BB&T Alum John Allison's Logic for Deals:

​Before becoming involved in a merger, it is critical that your own organization be running well. You are extremely unlikely to fix a broken system with an acquisition.

​It was also decided that our focus would be on solid or medium performing institutions. Dysfunctional organizations are typically difficult to fix. Also, it is hard to improve the performance of high performers. Why would a high performer sell if there were not hidden issues?

Part II: BB&T's Approach to Negotiation, Integration

Some of our competitors in the acquisition business would justify paying higher prices by assuming very aggressive cost savings...Our experience indicated that an acquirer who paid too much for one company would pay too much for the next company and would be forced to cut costs too aggressively, which destroyed the business it had acquired. 

On the date a merger was announced, we would hold an all-employee meeting in smaller companies and an all-manager meeting in larger businesses...At this meeting, the leaders of our merger partner would outline the reasons they had chosen to sell to BB&T. I would then discuss BB&T's strategy and culture with a primary focus on what it looked like to work for BB&T. We were very transparent to the employees about the benefits and the negatives of the merger from their perspective. Our goal was to eliminate as much ambiguity as possible. Ambiguity is more difficult to handle than bad news

​Part IV: BB&T's Strategy for Buying Nonbanks

Also, as we continued to roll up agencies, the insurance companies whose products we sold took notice because they realized the traditional agency system was not efficient and that we had developed a better model. We began to be able to negotiate better deals with the insurance companies, which allowed us to be more competitive in driving revenue (and sales incentive for employees) for the acquired agencies.

Over time, BB&T has radically improved its cross-sell effectiveness, but there is a long learning curve for both bankers and agents. The key decision early on was to focus on having a world-class insurance agency system and then to drive cross-selling. If we truly were able to deliver better insurance products and services to our banking clients, then the cross-sell would naturally follow.

BB&T purchased a subprime automobile finance company at exactly the wrong time in the credit cycle. Prime-grade auto finance is one of BB&T's core businesses, and we thought there would be synergies between the prime and subprime businesses. The owner of the subprime business was very smart, and he saw the correction coming and sold at the peak. Be careful in buying a business from someone who knows a lot more about the industry than you do. ​

​Part V: How BB&T Guarded Against Hostile Bids

A little background, NCNB/NationsBank/Bank of America (same organization with new names) and First Union/Wachovia (the same organization with different names) had both coveted BB&T. The only way I was able to keep either organization from making an unfriendly offer was to play them against each other. I told Hugh that he could make an offer that would probably force us to sell, but I thought I could direct the sale to First Union. I told Ed Crutchfield, who was CEO of First Union, that if he forced the issue, I thought I could direct the sale to Bank of America. Of course, in order to earn the right from a shareholders' perspective to remain independent, we had to outperform the potential acquirers, which we did.