The number of community banks in the US has decreased from 14,000 to about 5,000 since 1985, and some say the number will likley end up between 2,000 and 3,000 in a few more years. Consolidation has been driven by the need to meet regulatory requirements, implement better technology, offer more products and services, or meet the succession needs of the owners.
Agriculture has seen its share of consolidation in the hog and poultry secotrs, the cattle feeding and meatpacking sectors, and the dairy sector has been particularly affected in recent years. As we look at cattle producers and row crop farmers and the coming consolidation, what are some of the lessons we might take from the banking industry?
- Get your financial and production information in good shape. Whether acquiring or being acquired, being on top of your numbers can help you move quickly. How much growth can you handle without creating too much risk? If you are selling your business, having your numbers easily accessible helps you know when it's time to sell, and can offer you flexibility in approaching or negotiating with multiple buyers over a longer time period.
- Understand your strengths and weaknesses. Whether it is your location, your staff, the contiguity of your land, the quality of your soils, or the number of landowners, spend some time articulating what you bring to the table. If you are a seller, it helps position the business for value. If you are a buyer, you become clearer about how the purchase will accelerate your performance or diversify your business.
- Be early rather than late. If you remember 2008, there were several forced acquistions among banks. Forced transactions reduce the time for analysis and remove the control, flexibility, and arguably some of the value from the seller. A voluntary approach by both parties makes for a smoother transition.
Every industry goes through consolidation at some level, and agriculture, with its current low prices and high average farmer age, will see more of it. Use lessons from other industries to be ready for what we know we will experience.