Last week, Kevin Strachan joined me in the podcast studio to discuss the ability of privately held banks to use their securities as consideration to acquire another institution.
Sadly, since the last time we recorded a podcast, the patriarch of our banking practice, Walt Moeling, passed away. Our previously posted memorial included several links to remember Walt, but of particular relatedness to the podcast, we encourage everyone to listen again to two earlier podcasts with Walt sharing his wisdom. In December 2016, Walt joined us on the podcast to discuss, among other things, the future of the banking industry and what one regulatory change he would make if given unlimited power. Then, in March 2017, Walt spoke about establishing a sustainable sales culture.
Somehow, I was able to read the notes I had scribbled about Walt, and we then continued to discuss two common (and contradictory) misconceptions on private company merger and acquisition activity.
The first misconception is that privately held companies can’t issue stock as merger consideration. The second misconception is that privately held companies can issue stock without restriction as merger consideration. We regularly hear both of these misconceptions when advising private companies on a potential merger transaction where they are looking to issue (or receive) private company stock. While neither of these ideas are correct, the truth is messy and usually requires further discussion.
Among the topics covered with Kevin in this episode of The Bank Account are:
- the additional flexibility of banks without holding companies (and the limitations of that flexibility);
- SEC registration via merger;
- Regulation A+ in mergers;
- the state Fairness Hearing exemption; and
- using Rule 506 of Regulation D to issue securities to the target shareholders.
For private companies considering an acquisition of another institution, further conversations with investment bankers and lawyers are almost certainly going to be needed, but this episode of The Bank Account can give you a head start in understanding some of the potential options that may be out there.