The Investment Bankers: Deals and Dealmakers

When the deal has to get done, who do you turn to? The roughest, toughest hombre in the business, that’s who. The gunslinger who has the track record, the ammunition, and the guts to handle any challenger and still come out on top.

Investment banking firms that landed on Bank Director’s list of top companies either proved themselves worthy through unique megadeals in the past year or by sheer M&A volume alone. Why were they hired? Perhaps it was the charismatic influence of a certain personality or the firm’s longstanding reputation for success. In any case, these 14 companies–encompassing both large-institution and community bank-focused firms–were the investment advisors banks and directors felt were most likely to succeed when their institution’s future was at stake.

Carson Medlin Co.

Headquarters:Raleigh, NC

No. of offices: 3

Key contact: W. Gray Medlin, president

Representative clients: FNB Corp., First Western Bank

Corporate finance professionals: 10

No. of deals in 2001: 7

Value of deals in 2001: $241 million


When Steven W. Carson and W. Gray Medlin founded their own investment banking boutique in 1991 to focus on community banks, they decided to build their firm on a foundation of research. Today, Carson Medlin Co. publishes three quarterly research publications that cover older community banks in the southeastern and western regions, as well as de novo banks in the Southeast. The firm’s small but highly productive staff also publishes a variety of community bank bulletins throughout the year. “I think that’s one thing that sets us apart–a real dedication to research,” says Medlin, who now runs the firm following Carson’s retirement in December 2000.

This dedication to research provides Raleigh, North Carolina-based Carson Medlin with two important advantages–a broad perspective on trends in the industry and their impact on the M&A market for banks and thrifts, as well as a good feel for valuations through a number of market cycles. “That national perspective gives us a leg up on local firms,” says Medlin.

Carson Medlin has a staff of 10 working from offices in Raleigh, Tampa, and Hershey, Pennsylvania. The firm represents both buyers and sellers, and while Medlin concedes that “traditionally in this business you make more money on the sell side,” he finds himself becoming increasingly attracted to the buy side. “In my mind, it’s more interesting,” he explains. “The pressure is greater. If you want to keep the relationship, the deal needs to work and work well.” Medlin says he also thrives on the intellectual challenge of helping banks and thrifts expand their franchises through acquisitions. “We like to think of ourselves as strategic thinkers,” he says. “Building a bank through acquisitions is the ultimate corporate strategy. I like that. It’s fun.”

When advising sellers, Medlin says he avoids those situations where he is required to preside over “all-comer” auctions. “If I don’t right off know the one, two or three best people to buy it, I won’t take the assignment,” he says. Medlin’s concern is that all-comer auctions are often won by the highest bidder–but that may not be the best long-term acquirer for a franchise.

In 2001, Carson Medlin advised FNB Corp., a $700 million community bank located in Christiansburg, Virginia, on its acquisition of $200 million Salem Community Bancshares Inc. in Salem, Virginia, for $40 million. The price represented a 200% premium to Salem’s book value. Medlin says his firm has advised FNB on several acquisitions in recent years. “They’re closing in on $1 billion in assets,” he says. “That’s a long-term relationship we’ve had for many years.”

Credit Suisse First Boston USA

Headquarters: New York

No. of offices: 2

Key contact: Richard Barrett, managing director and global head of the financial institutions group

Representative clients: Mellon Financial Corp., Royal Bank of Canada

Corporate finance professionals: 72

No. of deals in 2001: 4

Value of deals in 2001:$21.2 billion


In the bank M&A wars of the past few years, the New York-based investment banking arm of Zurich-based Credit Suisse Group–Credit Suisse First Boston USA–has always made its presence felt. Last year it advised on four bank and thrift deals totaling $21.2 billion, according to data provided by SNL Financial–less than $500 million behind Merrill Lynch & Co. and Goldman Sachs & Co., respectively.

CSFB advised Wachovia Corp. on its $13.6 billion merger of equals with First Union Corp., as well as Dime Bancorp’s sale to Washington Mutual for $5.2 billion. The firm also received credit for advising both parties in Centura Banks’ sale to Royal Bank of Canada for $2.3 billion. Although the transaction was not included in SNL Financial’s bank and thrift advisory ranking (SNL counts branch transactions separately), CSFB advised Mellon Financial Corp. on the sale of its retail bank franchise to Citizens Financial Corp., and it worked on a number of bank mergers outside the U.S., including Bank of Scotland’s acquisition of Halifax Group.

CSFB became the subject of some controversy earlier this year when veteran dealmaker Michael E. Martin left to head the financial institutions group at UBS Warburg. Martin took with him two other veteran CSFB bankers–Oliver Sarkozy and John Adams.

Veteran M&A specialist Richard J. Barrett, a managing director, has headed up CSFB’s global financial institutions group–which includes 120 professionals domiciled in New York, Los Angeles, London, Tokyo, Hong Kong, and Melbourne/Sydney–since the firm’s November 2000 acquisition of Donaldson Lufkin & Jenrette. Barrett had held the same position at DLJ. Ironically, before joining DLJ in 1998 he had led UBS Warburg’s financial institutions group–which Martin now runs.

Goldman, Sachs & Co.

Headquarters: New York

No. of offices: 4

Key contact: John Mahoney, managing director and head of investment banking for U.S. banks and thrifts

Representative clients: Washington Mutual Inc., Golden West Financial Corp.

Corporate finance professionals: 65

No. of deals in 2001: 4

Value of deals in 2001: $21.3 billion

Website: www.gs.com

If any name in the merger advisory business is synonymous with megadeals in the banking sector, it’s Goldman Sachs & Co. Last year was certainly no exception. New York-based Goldman represented Wachovia in its hotly contested merger of equals with First Union Corp. and also acted for Washington Mutual in its acquisition of Dime Bancorp. Those just happened to be the two largest bank or thrift transactions in the U.S. in 2001–a coup of which Goldman is quite proud.

While 2002 has hardly been a banner year for bank M&A transactions thus far, Goldman also advised Golden West Financial Corp. on its sale to Citigroup for $6 billion. As this issue went to press in midsummer, that stood as the largest deal of the year. “We are usually number one, or close to being number one, year in and year out,” says John Mahoney, a managing director and head of the investment banking business for U.S. banks.

Goldman is a global firm that brings substantial resources to the bank M&A market. Approximately 125 people work in its financial institutions group in the U.S., and about a third of those are devoted to the bank market. The group has another 75 or so bankers working from offices outside the U.S., including London, Frankfort, Tokyo, Hong Kong, and Sydney. The group does not differentiate between M&A bankers and other capital markets specialists, so when calling officers visit clients they discuss a range of strategic options that may also include selling equity, raising debt, or removing assets from the balance sheet through securitization. Still, as Mahoney points out, M&A advice is more than just another product in the group’s arsenal. “It’s the most strategic issue on any CEO’s mind,” he says.

While Goldman is strongly entrenched at the top end of the market, Mahoney quickly dispells the notion that it is only interested in working with large institutions. “We work for a lot of mid-sized banks,” he says. “It’s not just the top 10 or 20 that matter to us. It’s the top 50 or 100.”

The merger of Wachovia and First Union was the industry’s first contested deal in several years. A third player–SunTrust Banks–made an unsolicited hostile tender offer for Wachovia that took several months to fight off. According to Mahoney, it was just the kind of assignment Goldman excels at. “It was complicated and intense, but it was right up our alley,” he says.

Hoefer & Arnett

Headquarters: San Francisco

No. of offices: 4

Key contact: Michael Abrahams, managing director

Representative clients: SouthTrust Corp., Wachovia Corp.

Corporate finance professionals: 6

No. of deals in 2001: 7

Value of deals in 2001:$170.5 million

Website: www.hoeferarnett.com

If you’re going to focus most of your bank M&A efforts in two markets, California and Texas, with their huge populations of community banks, aren’t bad locations to pick. San Francisco-based Hoefer & Arnett advised on seven deals for a combined value of $170 million in 2001, and all but one of them were in those two states.

The 20-year-old firm started out as a research boutique, then gradually moved into trading and investment banking. Hoefer has 45 employees and also maintains offices in Austin, Texas, and Baltimore. The firm specializes in financial services and technology, and its M&A clients are primarily small to medium-sized commercial banks, including both buyers and sellers.

Because Hoefer is a full-service investment banking firm specializing in commercial banks and makes a market in over 170 bank stocks, the firm probably knows the industry as well as anyone. And in addition to offering his clients the benefits of Hoefer’s extensive knowledge base, Managing Director Michael Abrahams, who heads up the firm’s M&A effort, also tries to be a straight shooter. “We try to do what’s right for the client rather than try to make as much money as possible,” he says. “If I don’t think a merger is a good idea, I’m going to tell them that. And I don’t make any money by not doing deals.”

One 2001 deal that stood out was SouthTrust Corp.’s acquisition of Bay Bancshares, a $300 million community bank in Houston that Hoefer had taken public in 1997. Thomas R. McCredy, a veteran investment banker who covers Texas from the firm’s Austin office, had to negotiate around a recalcitrant chief executive officer who opposed the bank’s sale to SouthTrust after the board of directors had chosen to move in that direction. “The most difficult part of that deal was negotiating a [severance] package for senior management,” McCredy says.

Hovde Financial Inc.

Headquarters: Washington, D.C.

No. of offices: 4

Key contact: Nick Barbarine, principal

Representative clients: MB Financial Inc.,National City Bancorp.

Corporate finance professionals: 9

No. of deals in 2001: 8

Value of deals in 2001: $589 million

Website: www.hovde.com

If there were one word Nick Barbarine might use to describe the way Hovde Financial scouts around for deals, it probably would be “aggressive.” “We’re very aggressive in our marketing efforts,” says Barbarine, a principal who oversees the Washington, D.C.-based firm’s M&A advisory activities on the East Coast. “We operate nationally, and not many mid-tier investment banking firms can say that.” Working from offices in Washington, Chicago, West Palm Beach, Florida, and Newport Beach, California, Hovde’s team of nine calling officers spend approximately 75% of their time on the road.

The firm domiciles its calling officers across the country because “you want to live there and be there all the time to service the client,” Barbarine says. Every M&A engagement is led by a senior Hovde banker, generally the calling officer who has responsibility for whatever region the client is located in. Unlike the practice at some larger bank merger shops, Hovde clients are never turned over to junior associates once the firm has received an assignment. “You’re not a senior person here until you can take a client from the beginning [of a transaction] to the end,” Barbarine says.

Hovde almost always represents the seller in M&A transactions, and its senior M&A bankers spend a lot of time taking bank directors and senior executives through a variety of strategic options that may include an outright sale, a merger of equals, branch acquisitions to expand into promising markets, or the raising of capital to fund organic growth. “We’re looking to help community bankers with their strategic decisions,” says Barbarine. Of course, discussions of this nature are almost always driven by one overriding concern: “At the end of the day, banks want to know what they’re worth.”

In 2001 Hovde advised on eight bank and thrift deals with a combined value of $589.4 million. Based on the level of activity through the first six months of this year, Barbarine expects to see between 170 and 180 bank deals in 2002. That would be well below the high-water mark set three years ago, when there were slightly over 500 deals–and takeover premiums for good banks could be expected to fetch as much as three times book value. Many potential sellers have been waiting for those halcyon days to return. “That’s one reason why you haven’t seen as many deals this year,” Barbarine says. “Community banks are still holding on to those valuation levels.”

When the directors and chief executive officers at a community bank don’t like what they hear from their financial advisor when the subject of valuation comes up, a strategy that Barbarine might suggest is a merger of equals with an in-market competitor. Says Barbarine, “Bigger banks in general get taken out at higher multiples.”

Keefe Bruyette & Woods Inc.

Headquarters: New York

No. of offices: 10

Key contact: Andrew Senchak, president and director of corporate finance

Representative clients: Banknorth Group Inc., Centura Banks Inc.

Corporate finance professionals: 8

No. of deals in 2001: 36

Value of deals in 2001: $6.3 billion

Website: www.kbw.com

There’s an old saying that while the chicken has an interest in bacon and eggs, it’s the pig that has made the commitment. In the bank M&A market, the same can be said for Keefe Bruyette & Woods, which has specialized in the bank and thrift market ever since it was founded in 1962. “We only have one sector–that’s our blessing and our curse,” says Andrew M. Senchak, president and director of corporate finance.

Like Sandler O’Neill & Partners, another boutique firm that also specializes on mid-sized banks and thrifts, Keefe was hard hit by the horrific events last September 11. The firm lost 67 employees– including a number of key people in its research and trading departments–when the World Trade Center collapsed. That makes it all the more remarkable that KBW ranked fifth last year among financial advisors on thrift and bank transactions, with 36 deals totaling $6.3 billion. Even more amazing is that 13 deals were announced after the tragedy. “We had extremes in good fortune and bad fortune,” says Senchak, who joined the firm in 1985.

Keefe is unique in that it fits in between the smaller M&A shops that work almost exclusively with community banks and the bulge-bracket firms that typically handle megamergers. Senchak believes that the firm is competitive when it calls on potential acquirers of $50 million in assets or less and on potential sellers of $25 million or less. KBW, he says, is driven by two factors. The first is its long-term commitment to the sector, regardless of how the merger market waxes and wanes. “We don’t pull resources in and out as the market cycle goes up and down,” he says. Keefe has 10 senior M&A bankers–it added two since last year despite the market’s current doldrums–working out of eight offices around the country.

The firm also provides equity research on a wide cross-section of banks and thrifts in part because it provides its M&A bankers with a full-spectrum view of what’s going on in the industry–from giant Citigroup down to community banks throughout the country.

One deal that posed an unusual challenge for KBW was Banknorth Group’s simultaneous acquisition of two Massachusetts thrifts–Andover Bancorp. for $330 million and MetroWest Bank for $166 million. “We had to coordinate the acquisitions and announce them on the same day,” Senchak says. While investors had been growing more comfortable with Banknorth’s expansion program, “this was still a risky step for them,” he says. Fortunately, the stock did not drop on the announcement and last summer was trading near its historic high.

Senchak, who has a Ph.D. in economics and once taught at Rutgers University, expects the industry’s consolidation to continue until the U.S. has a banking system much like Canada’s, where five large institutions dominate the market. “The only question is the pace,” he says.

Lehman Brothers Inc.

Headquarters:New York

No. of offices: 3

Key Contact: David Sherwood, managing director and head of the global financial institutions group

Representative clients: BNP Paribas Group, Charter One Financial Group

Corporate finance professionals: 26

No. of deals in 2001: 7

Value of deals in 2001: $9 billion

Website: www.lehman.com

Foreign banks have a mixed track record as acquirers in the U.S. market. What works at home doesn’t always work in America, and in recent years there have been nearly as many foreign banks that have sold their U.S. operations and retreated as there have been new entrants.

One foreign bank that seems to have figured out how to make successful acquisitions in the U.S. is Royal Bank of Scotland, which owns Providence, Rhode Island-based Citizens Financial Group. Last year Citizens acquired Mellon Bank Corp.’s retail banking business, a deal that expands its presence into the mid-Atlantic region. “That’s a model that has been receiving a considerable amount of attention,” says David Sherwood, managing director and head of Lehman Brothers’ global financial institutions group.

The Mellon transaction is just the kind of deal Lehman is well positioned to pull off. With offices in London, Tokyo, Hong Kong, and Seoul, the New York-based firm has the connections to put a foreign buyer together with a bank in the U.S. Indeed, last year it advised France’s BNP Paribas Group on its $2.4 billion acquisition of United California Bank. It would be fair to say that Lehman is one of just a handful of large advisor firms that can lay claim to being a global player in financial institutions M&A.

Lehman’s financial institutions group has 65 bankers, about 40% of whom focus on banks and thrifts. The firm’s coverage officers are proficient in all the products it offers and are able to talk with CEOs about a range of strategic options, of which an M&A transaction may be only one. “We offer the full range of product support via seamless coverage of a full-service firm,” says Mark Burton, managing director and head of Lehman’s financial institutions group in the U.S. “This differentiates our M&A advisory capabilities.”

The firm placed fourth in last year’s bank and thrift M&A rankings, advising on seven transactions with a combined value of just over $9 billion. The firm helped bring several acquirers into new markets last year. In addition to BNP Paribas, it advised Washington Mutual on its $5.2 billion acquisition of Dime Bancorp., taking Seattle-based Washington into the crowded New York marketplace. Lehman also advised Cleveland-based Charter One Financial on its $241 million acquisition of Alliance Bancorp in Hinsdale, Illinois, Charter One’s first foray into the Chicago market.

McDonald Financial Services Group

Headquarters: Cleveland

No. of offices: 4

Key contact: R. Lee Burrows, managing director (Atlanta)

Representative clients: Eagle Bancshares, Community First Banking Co.

Corporate finance professionals:20

No. of deals in 2001:10

Value of deals in 2001: $698 million

Website: www.mcdonaldinvest.com

There are really two species of bank M&A deals in the U.S.–the relatively small number of megamergers that occur in any given year, and the plethora of small community banks deals that account for the bulk of transaction volume. And since most M&A advisory firms concentrate on one or the other, they’re either too big to care about the minnows or too small to land a whale.

One firm that tries to catch both is Cleveland-based McDonald Financial Services Group, which fills a gap between the firms that focus on big banks and the large number of small firms that service the community market. Last year McDonald advised on 10 bank and thrift deals totaling $698 million. Only KBW, with 36, and Sandler, with 16, had a higher deal total in 2001.

Through the first six months of 2002, McDonald advised on nine depository institution transactions, with another 13 deals in the works–not a bad effort given the slow pace of M&A activity this year.

McDonald tries to exploit its position in the marketplace by talking with banks both large and small–and when possible, acting as a conduit between the two. “We don’t have any size limitations,” says R. Lee Burrows, a managing director who oversees McDonald’s bank M&A effort.

The firm also focuses on building long-term relations with its clients, and tries to think beyond the next transaction. “That’s how clients like to be treated,” says Scott Brewer, a senior vice president who joined the firm recently from Morgan Stanley Dean Witter. “We’re very patient, and I think that patience pays off.” The firm has 20 professionals dedicated to its bank M&A effort, working from offices in Cleveland, Denver, Atlanta, and Raleigh.

BB&T Corp.’s acquisition last year of Atlanta-based Community First Banking Co. offers a good example of how McDonald uses its in-between position in the market to facilitate deals. Community First’s board of directors decided to consider a sale of the $550 million institution because of a combination of competitive and demographic changes that were occurring in the Greater Atlanta banking market. Burrows, who enjoyed a longstanding relationship with Winston-Salem-based BB&T and knew the company was keen on expanding its presence in Atlanta, made a connection between the two organizations. “Having sold over a dozen banks to BB&T, we were able to put together a deal,” he says. At $135 million, the sale price represented a 280% premium to book value and was approximately 21 times earnings.

Merrill Lynch & Co.

Headquarters: New York

No. of offices: 3

Key contact: Greg Fleming, co-head of the global financial institutions group

Representative clients: Wachovia Corp., BankAmerica Corp.

Corporate finance professionals: 55

No. of deals in 2001: 5

Value of deals in 2001: $21.6 billion

Website: www.ml.com

In the M&A business, information is often the coin of the realm. And Merrill Lynch & Co. prides itself on dispensing lots of coin to its corporate clients.

Good investment bankers are an invaluable resource because they serve as another set of eyes and ears on the world. They provide CEOs and other senior corporate executives–who often are focused narrowly on achieving the next quarter’s earnings forecast–with crucial intelligence about what’s happening in their industry and how it affects their companies. “It’s a constant strategic discussion, and it’s at a level where you better know what you’re talking about,” says Greg Fleming, co-head of Merrill’s global financial institutions group. “For our top clients, we talk to the CEO almost weekly.”

One of Merrill’s strengths is the sweeping breadth of its investment banking activities. Last year it was the global leader in raising both corporate debt and equity, and the second-largest firm in global M&A. In any given year it is involved in tens of thousands of transactions around the world that provide enormous insight into the workings of markets and the forces that drive them. Fleming’s financial institutions group also has been organized by industry sector: asset management, specialty finance, insurance, technology and transaction processing, and depository institutions. And Merrill’s bank and thrift unit is broken down even further so that it has the same aforementioned experts who understand those specialties–asset management, insurance, and so forth–within the context of a bank or thrift.

Thanks to the twin forces of consolidation and convergence, even smaller regional banks have a need to understand the world in which they operate. Eric Heaton, co-head of Merrill’s depository institutions unit, points to Royal Bank of Canada’s acquisition last year of Rocky Mount, North Carolina-based Centura Banks. Three years ago most banks in the Southeast didn’t have Canadian banks on their radarscopes. “Now they all want to know what Royal’s thinking, what CIBC’s thinking,” says Heaton. Fleming also points to two bank acquisitions that France’s BNP Paribas Group made last year in California–which has caused bank boards to tune their antennas toward other potential European acquirers. “It’s very possible that a regional bank could have a competitor get acquired by a European bank,” says Fleming.

While 2001 was not a spectacular year for bank and thrift deals, Merrill managed to squeeze past Goldman Sachs to lead the financial advisory rankings for depository institutions, with five deals totaling $21.6 billion. (It was a close contest. The top three firms–Merrill, Goldman, and Credit Suisse First Boston USA–were within $410 million of each other.) Merrill advised Dime Bancorp in its $13.6 billion acquisition by Washington Mutual, a deal the firm is particulary proud of, especially in light of an earlier unwanted takeover attempt of Dime by North Fork Bancorp. At that time, when Merrill was representing Dime during its attempt to thwart North Fork’s advances, North Fork was offering $17 a share. Dime sold to Washington Mutual for $40.84 a share–a 140% increase.

Morgan Stanley Dean Witter

Headquarters: New York

No. of offices: 1

Key contact: William M. Weiant, managing director

Representative clients: United California Bank, Bank One Corp.

Corporate finance professionals: NA

No. of deals in 2001: 1

Value of deals in 2001: $2.4 billion


2001 was not an especially good year in the bank M&A advisory business. And it was a downright stinker for Morgan Stanley Dean Witter, which through the 1990s had been at the white-hot center of many of the banking industry’s largest deals, representing such storied names as Bank One Corp., Bank of Boston Corp., and Bankers Trust New York Corp.

Last year the New York-based investment bank was involved in just one bank or thrift transaction, but it was a whopper–it advised United California Bank on its sale to Paris-based BNP Paribas Group for $2.4 billion. This deal put Morgan Stanley eighth among all financial advisors ranked by total deal volume in 2001.

Morgan Stanley has a venerable heritage and brings some vital strengths to the marketplace, beginning with a degree of stability that some of its larger competitors can’t match. In recent years, several of its major competitors have lost senior M&A bankers in the financial institutions sector. And in a business where relationships and personal experience still count for something, that’s critical.

Weiant says that Morgan Stanley’s approach is to help its financial services clients evaluate a variety of strategic options and choose the one that best fits their growth objectives. “We look at ourselves as being strategic advisors–almost their strategic partner,” he says. “We work with them to identify long-term trends within the industry and then help them to position themselves within that.” He adds, “We’re much less transaction oriented.”

The financial institutions group at Morgan Stanley also has a policy that the same advisors who routinely call on clients also do the deals with they occur. “We’ve always done both coverage and execution within our group,” says Weiant. “We think there’s continuity of having the people doing the coverage also doing the execution.” And despite its strong identification with the top end of the market, the group covers most banks down to $1 billion in asset size, and selected banks as small as $300 million in size.

While bank M&A activity continues to be slow, Weiant sees increasing interest in medium sized banks between $500 million and $1 billion in assets. Mid-cap bank stocks are performing well and many potential acquirers are itching to get back into the market. Says Weiant, “Everybody’s feeling good and that’s the time when transactions occur.”

Samco Capital Markets

Headquarters: Dallas

No. of offices: 1

Key contact: James B. Gardner, senior managing director

Representative clients: Bank of Houston, The First National Bank of Amarillo

Corporate finance professionals: 5

No. of deals in 2001: 9

Value of deals in 2001: $275 million

Website: www.samcocapital.com

When a bank retains SAMCO Capital Markets to advise it on an M&A transaction, it gets the services of a three-man team that has approximately 97 years of experience in the banking industry. Senior Managing Director James B. Gardner has spent 40 years in the banking business and the last 10 years doing M&A deals at Dallas-based SAMCO. Managing Partner William “Tex” Gross has 30 years of experience in the banking and advisory businesses, while Managing Director Dorry Wiley–who has a CPA, CFA, and MBA to his credit–is a relative newcomer with just 17 years under his belt.

Assisted by two analysts, and operating from their Dallas office, the three men work closely together on all deals the firm does. “We operate as a partnership,” says Gardner. “When you employ us, you have all three of us working on your behalf.” Gardner believes that the team’s extensive buy-side experience is a big advantage to clients. “I know, and my partners know, what someone is looking for in a bank,” he says. The firm does most of its advisory work in the Southwest, although recently it expanded into the Southeast, and prefers to represent buyers. When advising a potential acquirer, Gardner says, “you do a lot of work and frequently [an acquisition] doesn’t happen. And we don’t like to charge people for things that don’t happen.”

Last year SAMCO advised on nine transactions for a total value of $274 million. Gardener concedes that was a pretty heavy workload for just five professionals. “We stretched ourselves pretty thin, but we try not to take on too much,” he says. “We don’t try to do all the deals and we try to feel good about the deals that we end up doing.” SAMCO is reluctant to take on an advisory assignment when there is not a clear sense of what the board of directors wants to do, or when the board is reluctant to deal openly with the institution’s problems. “If you’ve had problems in the past, don’t hide them,” he says. “Put them out front.”

Last year SAMCO advised the Bank of Houston on its sale to Whitney Holding Corp. after the CEO–who had run the bank since 1947–decided to step down. At $73 million, the transaction price was approximately three and a half times book value and 20 times earnings. “He wanted a very good price for his bank and we were able to get him substantially more,” Gardner says. “That made him happy and made us happy.”

Sandler O’Neill & Partners L.P.

Headquarters: New York

No. of offices:2

Key contact: Paul R. Haklisch, principal

Representative clients: NetBank Inc., National Commerce Financial Corp.

Corporate finance professionals: TK

No. of deals in 2001:16

Value of deals in 2001:$2.6 billion


It’s impossible to discuss Sandler O’Neill & Partners without mentioning the September 11 terrorist attack on the World Trade Center. Sandler was located on the 104th floor of the second office tower that was hit that day and it lost over a third of its employees–including Christopher Quackenbush, one of the firm’s principals and the head of its M&A practice. The loss cannot be underestimated. “We miss them as friends. We miss them as professionals,” says Paul Haklisch, a principal and veteran dealmaker in the group.

In light of that tragedy, it’s all the more remarkable that Sandler placed sixth in last year’s financial advisory ranking for total deal value and second for total deals, having worked on 16 transactions totaling $2.6 billion. Only Keefe Bruyette & Woods, with its own casualties from September 11, handled more transactions in 2001. Such amazing resilience speaks to the integrity and level of respect for which both firms are known in the industry.

One of Sandler O’Neill’s strengths is that it’s solidly entrenched in the middle market where most of the merger activity has been for the last year or so. Indeed, Sandler was formed to service small banks and thrifts that sometimes had trouble catching the attention of larger investment banking houses. “We are totally marinated in that sector,” says Haklisch. “And we do nothing but financial institutions transactions.” “We’ve seen it all and continue to do as much of it as anyone,” adds Brian Sterling, a principal who joined the firm recently from Merrill Lynch & Co.

An advantage that comes from Sandler’s historical identification with the small bank market is that it often picks up on leads that larger bulge-bracket firms might miss. “We do have strategic intelligence on things that our larger competitors don’t necessarily have,” says Haklisch. But at the same time, the firm is able to provide its clients with a comprehensive array of capital markets products and services that enables it to participate in deals with its much larger competitors–and sometimes supplant them. “We are a small firm, but we are a very big firm in this space,” says William F. Hickey, a principal.

A perfect example was New York Community Bancorp.’s merger of equals last year with Richmond County Financial Corp. The deal was valued at $779 million, with Sandler advising New York Community. According to Hickey, it took time for the two management teams to get comfortable with each other and then choose a group of executives from both institutions to run the new company. “The toughest part of that transaction was putting the social deal together,” he says. With total assets of $9.3 billion, New York Community is now large enough to attract attention from other acquirers as an entry vehicle into the New York market. Sterling says that New York Community would sell out at the right price. “They are as much a seller as they are a buyer,” he says. “The management there is very shareholder focused.” Sandler later showed its muscle again this April when it jointly managed, with Salomon Smith Barney and Lehman Brothers, a secondary offering of common stock that raised an additional $173 million for the company.

Haklisch believes the high point of 2001 was Sandler’s phoenix-like performance in spite of the tragic events of last September. The firm’s dealmakers even managed to close [confirm] three M&A transactions in November, despite the loss of all its records. “We fired on all cylinders under very unusual circumstances,” he says.

Alex Sheshunoff & Co.

Headquarters: Austin, TX

No. of offices:1

Key contact: Charles I. Miller, managing director

Representative clients: Community Bancshares Inc., Central Bank Shares Inc.

Corporate finance professionals:8

No. of deals in 2001: 8

Value of deals in 2001: $338 million

Website: www.ashesh.com

One reason why Charles Miller has enjoyed a successful career running the bank M&A business at Austin, Texas-based Alex Sheshunoff & Co. is that he knows when to leave the fancy suits at home.

Miller loves to compete for assignments with larger advisory firms that have “better pedigrees” because he so often beats them. And one reason why is that Miller and the other senior members of his team all draw on years of experience in the banking industry–including hands-on management at community banks. That authority plays well with directors and CEOs who might find it harder to trust an advisor who has never foreclosed on a loan or opened a branch office. “We beat them pretty consistently,” says Miller, an ex-bank CFO who cut his teeth in the business years ago doing deals as an acquirer. “They’re brighter than me, but the boards just aren’t comfortable with them.”

It may also help that Miller knows better to show up for meetings with his community bank clients looking like, well, a fancy investment banker. “I have pinstripes in the closet, but I don’t haul them out very often,” he laughs.

Sheshunoff represents only sellers in bank M&A transactions, and Miller describes the firm’s style as “a lot of high touch.” That’s crucial, because the decision to sell a bank “seldom starts from a rational process, but tends to be event driven,” he says. Often a sale is initiated by such things as estate issues or the desire of an aging CEO without a succession plan to retire. And a soft touch is important because “this is a very anxious period for them–this is their baby,” he says.

Like most of M&A advisors, Sheshunoff did not have a particularly good year in 2001. “Last year was a tough deal,” Miller concedes. “A number of buyers basically went to ground.” The firm advised on a total of eight deals for a combined value of $338 million. The firm relies on a team of eight professionals–four senior bankers, three analysts and one administrative assistant–who cover the entire country from Sheshunoff’s Austin office. “If you compare us with the bigger guys, we’re tiny,” Miller says.

He is especially proud of two deals the firm did in 2001 because, in his estimation, “they set a new standard for pricing.” The first was the acquisition of Community Bancshares Inc. in Katy, Texas, by Houston-based Sterling Bancshares. Miller advised Community, and the $37.8 million purchase price represented a 583% premium to the bank’s tangible book value and 22 times its 2001 earnings. Sheshunoff also advised Orlando-based Central Bank Shares Inc. on its sale to FNB Corp. in Naples, Florida. There, the $80 million purchase price represented a 337% premium to book value and 27 times earnings.

Salomon Smith Barney

Headquarters: New York

No. of offices:3

Key contact: David Head, managing director

Representative clients: U.S. Bancorp, Nationwide Financial Services Inc.

Corporate finance professionals: 60

No. of deals in 2001: 1

Value of deals in 2001: $779 million

Website: www.salomonsmithbarney.com

It should come as no surprise that Salomon Smith Barney Holdings has a good feel for the dramatic transformation that is occurring in the financial services industry. That’s because the firm itself is a product of these very same market forces. A unit of New York-based Citigroup, Salomon joined the Citi family in 1998 following the groundbreaking merger of Citicorp and Travelers Corp.–a historic event because for the first time it combined a commercial bank, an insurance company, an investment bank, and significant investment management business under one roof.

“When you consider that the financial services industry is converging, we have expertise in all those areas,” says Managing Director David Head, who runs the financial institutions M&A practice at Salomon. Add to that knowledge Salomon’s extensive international network, with outposts in London, Tokyo, Seoul, and Hong Kong and you end up with a firm that brings both insight and global reach to its customer base. Salomon is helping many of its bank financial services clients think through their strategic options in a market where acquirers have a greater number of conceivable choices than every before. Head says that many companies are trying to identify their core competencies and then identify acquisitions that will enable them to either strengthen or expand those capabilities. “People are trying to figure out what are the right products to sell, and then how to cross-sell them to different customer groups,” he says.

Salomon ranked ninth in last year’s financial advisory ranking for bank deals. Its sole transaction was U.S. Bancorp’s $779 million acquisition of Nova Corp., a merchant processing company that wanted to affiliate with a strong parent that could help fund its growth with both capital and access to a broader customer base. “U.S. Bancorp already had a very strong payments business,” explains Head. “And Nova had run into some growth issues.”

The firm also advised Nationwide Financial Services, a subsidiary of Nationwide Mutual that sells a variety of retirement products, including annuities and mutual funds, in its acquisition of Provident Mutual. The challenge of this deal, according to Head, was helping the Provident management to get comfortable with the prospect of joining a company that had public owners. Twenty percent of Nationwide Financial’s equity was publicly owned–although the proposed transaction would bump this up to nearly 50%. “We had to get the Provident Mutual management comfortable with what it would be like to be in a stock corporation,” he says. “I think it was just a matter of spending time with Nationwide Financial; reverse due diligence; getting to know them.”

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