If there’s one thing large bank acquirers have in common, it may be their willingness to leapfrog into new geographies in the pursuit of growth and profitability.
These larger acquirers have saturated their own markets, driving them to seek out strategic fits outside their territories, says Rick Childs, a partner at Crowe LLP. And their size can be an advantage in successfully acquiring and integrating targets in new, more distant markets. “At a certain size, you have the heft and the infrastructure to manage a longer distance network,” he says.
In its willingness to acquire more than 1,000 miles from its home base of Wayne, New Jersey, Valley National Bancorp’s January 2018 acquisition of $4.7 billion asset USAmeriBancorp, in Clearwater, Florida, may best exhibit this approach. It’s also the deal that topped Bank Director’s ranking for the best large bank deals. To qualify, the acquirer had to have $15 billion or more in assets. Only deals where the seller comprised at least 10% of buyer assets were examined, to ensure the acquisition had a material impact.
It’s a process that started in 2014, with the bank’s acquisition of $1.7 billion asset 1st United Bancorp, based in Boca Raton, Florida. USAmeriBancorp was Valley National’s third acquisition in the state and helped fill in its Florida branch map around the Tampa area; it also added locations in Alabama. The $33.8 billion asset bank also gained a superior treasury management platform in the transaction. But it was the talent that Valley National acquired from USAB that made it successful.
“We actually saw net account growth in the USAB markets one year later,” says Ira Robbins, Valley National’s president and CEO. “It’s not that balances have grown because we’ve offered specials in each individual market; it’s the bankers associated with USAB and the support of the Valley bankers.” Valley National retained USAB’s CEO, chief lending officer, chief marketing officer and other senior leaders. “They [aren’t] just puppet positions within the organization; [they have] an ability to execute and deliver improved performance across the entire organization,” he adds.
The five best large bank acquisitions were ranked based on growth in return on assets following the close of the deal. These deals were then analyzed and ranked a second time based on profitability growth, measured through earnings per share, return on average assets and return on average equity; efficiency improvement, based on the efficiency ratio and noninterest expense as a percentage of assets; credit quality improvement, based on nonperforming loans as a percentage of loans and net charge-offs; growth in tangible book value per share; and lending efficacy, based on each bank’s loan-to-deposit ratio one year after the deal closed.
Bank Director also examined less concrete characteristics, including geographic expansion, acquired talent and drawbacks, such as integration flubs. Bank analysts were also consulted.
The sellers were “recognized as being banks that were well run, with good management teams in some thriving market spaces,” says Childs. “It defines what people are looking for, particularly in this large bank space.”
A year after closing the deal, Valley National improved its profitability and efficiency metrics more than the other acquirers in the category. By June 2019, it grew EPS by 178.8%, ROAA by 123.3% and ROAE by 138.1%.
Two more high-performing deals included expansion into Florida, as well as the retention of key executives.
Memphis, Tennessee-based First Horizon National Corp.’s acquisition of $10.1 billion asset Capital Bank Financial Corp. significantly enhanced its Southeastern U.S. footprint, adding 193 branches in the Carolinas, Tennessee, Virginia and Florida. In fact, the $43.7 billion asset bank’s South Florida deposit base is roughly double that of its Tennessee home market, according to First Horizon Chairman, President and CEO D. Bryan Jordan, in a May 2017 call announcing the acquisition. The deal closed the following November.
“Florida is a big part of the growth,” says Chris Marinac, director of research at Janney Montgomery Scott. First Horizon ranked third in the category.
For IBERIABANK Corp., access to the dynamic Miami market through its July 2017 acquisition of $5.7 billion asset Sabadell United Bank had a significant impact on its deposit base. After the transaction, Florida became IBERIA’s largest market by deposits.
While ranked fourth overall, the Lafayette, Louisiana-based bank rated highly for profitability and credit quality improvement. In November 2019, First Horizon and IBERIA announced they would merge to create a “premier southern-based bank.”
In a much colder region of the U.S., $20.4 billion asset Old National Bancorp’s expansion into Minnesota was also a play for growth. The Evansville, Indiana-based bank’s experience as an acquirer and lack of presence in the market made it a more attractive partner for $2.1 billion asset Anchor Bancorp, based in St. Paul, Minnesota. “We knew … that senior leaders in charge of business units and customer- facing employees would be retained if the acquirer was a new entrant into the market,” former Anchor Chief Financial Officer Dennis Nisler said at an industry event in November 2018. Owners were willing to sacrifice some on price to minimize the acquisition’s impact on employees. The deal ranked fifth in our analysis.
Sterling Bancorp’s merger with $14 billion asset Astoria Financial Corp., based in Lake Success, New York, stands out as the only deal where keeping the acquired talent and branches wasn’t a goal. Shortly before the deal closed, it was announced that 230 employees would lose their jobs. And after, Sterling shuttered 33 financial centers with aims to eliminate another 12 over the next year, said Jack Kopnisky, the president and CEO of the Montebello, New York-based bank in a July 2019 earnings call. Sterling rated highly for its efficiency improvement and TBV growth.
The Astoria acquisition also reduced the $30.1 billion asset bank’s percentage of brokered deposits. “What Astoria brought to Sterling was a good, strong franchise out on Long Island, a depository franchise, for a very low price,” says Collyn Gilbert, a managing director at Keefe, Bruyette & Woods. “There was a lot of financial attractiveness to that deal.”
How They Ranked: Best Large Bank Deal
|ACQUIRER NAME, LOCATION / ASSET SIZE||TARGET NAME, LOCATION / ASSET SIZE||DEAL DATE||SCORE|
|1||Valley National Bancorp
Wayne, NJ / $33.8 billion
Clearwater, FL / $4.7 billion
|Jan. 1, 2018||1.97|
Montebello, NY / $30.1 billion
|Astoria Financial Corp.
Lake Success, NY / $14.0 billion
|Oct. 2, 2017||2.94|
|3||First Horizon National Corp.
Memphis, TN / $43.7 billion
|Capital Bank Financial Corp.
Charlotte, NC / $10.1 billion
|Nov. 30, 2017||3.05|
Lafayette, LA / $31.7 billion
|Sabadell United Bank, N.A.
Miami, FL / $5.7 billion
|Jul. 31, 2017||3.24|
|5||Old National Bancorp
Evansville, IN / $20.4 billion
St. Paul, MN / $2.1 billion
|Nov. 1, 2017||3.61|
SOURCES: S&P Global Market Intelligence, bank filings