A stream of M&A deals involving large community banks occurred in January, and more are expected as strong stock prices allow buyers to pull off smart, accretive deals.
There were nine deals announced last month worth $100 million to $300 million, including six in its last ten days, according to data from Keefe, Bruyette & Woods.
They ranged from Yadkin Financial's (YDKN) agreement to buy VantageSouth Bancshares (VSB) for just under $300 million to TriCo Bancshares' (TCBK) deal for North Valley Bancorp (NOVB) valued at around $178 million.
That flurry capped a month that saw the average deal price rise substantially and the total value of deals more than double compared with a year earlier.
There were 19 deals last month, with a total value of about $1.8 billion, compared with 17 deals worth a total of $767 million in January 2013, according to Banks Street Partners. The average price to tangible book value rose to just under 160%, from 101% a year earlier.
These higher prices suggest that healthy banks are more willing to sell than they were a year ago. But it also is a by-product of strength in the stock market, which has made it easier to structure deals at prices that are attractive for the seller while also accretive for the buyer, says Lee Burrows, Banks Street's chief executive.
"There's been strong demand for sellers for some period of time, but until the last six to eight months the buyers' stock hasn't been priced attractively enough to make the deals work," Burrows says. "The strength of the buyers' currency, and the continued positive market reaction to these announcements, are two things that have made these deals so attractive."
The last of January's larger deals, Bank of the Ozarks' (OZRK) agreement to purchase Summit Bancorp for about $216 million in cash and stock, is a good example of the trend. Bank of the Ozarks has agreed to pay around 160% of tangible book value for Summit, right in line with the monthly average, and the deal would be immediately accretive to earnings.
"Ozarks has a very strong currency, and they're able to use that currency to create attractive pricing," says Brian Zabora, an analyst with Keefe, Bruyette & Woods.
Bank of the Ozarks' stock has gained more than 65% over the past year, reaching nearly $61 a share as of late Monday, a gain that outpaced the 22% rise in the KBW Bank Index over the past year. Its stock got a bump of about 7% following the deal announcement, rising above $63 a share before sliding back slightly.
To be sure, the market has turned more volatile in early 2014 after a strong 2013, and the KBW Bank Index has slipped more than 5% this year. Yet midtier banks will likely continue to see many enticing merger opportunities even if the market trails off slightly, Burrows says.
"There is a real opportunity for banks that can get to $5 billion to $10 billion in assets to be the acquirer of choice in many markets," he said.
The market's positive reaction has been typical of recent deals of this size. Yadkin got a boost after announcing its most recent deal, as did CenterState Banks (CSFL) after it said it would to buy First Southern Bancorp in Boca Raton, Fla., last week. Center Bancorp (CNBC) in New Jersey got a bump of around 10% after announcing that it would merge with ConnectOne (CNOB) for about $243 million.
"The market certainly has applauded all the $1 billion- and $2 billion-asset banks coming together to create $3- and $4- and $5 billion-asset banks," Burrows says. The positive reaction is due both to demand for lenders that size as well as the potential for improved efficiency when small lenders come together, analysts say.
Bank of the Ozarks could shave up to 38% from the Arkadelphia, Ark.-based Summit's expenses, Zabora says. Nine of Summit's 24 locations are within one mile of a Bank of the Ozarks office. That proximity leaves plenty of room for branch cuts, which community banks have increasingly turned to after years of resisting calls to trim their networks.
While gauging the number of banks on the market is tricky, Ozarks CEO George Gleason is "seeing more [M&A] opportunities than we can take a look at," he said on a quarterly conference call less than a week before the Summit deal was announced.
Bank of the Ozarks has lately turned back to open-bank deals after years of focusing on expansion largely through failed-bank deals. In the past year, as Federal Deposit Insurance Corp.-assisted deals have become scarce, Ozarks has bought two healthy banks outside of its core market between Arkansas and Missouri, buying First National Bank of Shelby, near Charlotte, N.C., and Bancshares, Inc., in Houston. Ozarks bought seven failed banks and no healthy banks between 2010 and 2011.
The scarcity of failures could allow more midsize banks that had once been failed-bank buyers to actively seek out open-bank deals, rather than scout troubled banks in their region while waiting for the FDIC to come calling.
"If you want to be a disciplined acquirer [through failed-bank deals], you have to just wait and keep your powder dry and see what comes up," Burrows says. "I think the lack of failures frees up banks like Bank of the Ozarks to go out and seek deals in their footprint that they may have interest in."
Chris Cumming is a reporter for American Banker.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access