Best M&A Strategy

Mergers and acquisitions are a line of business at acquisitive banks, and those that excel at it are consistent in the execution of their strategy. “It comes down to your strategy, but also, how do you envision the deal results,” says Kara Baldwin, a partner at Crowe LLP. “And then, could you execute on that?”

Strong acquirers know what they want. Then, they execute on it.

The leadership team at Seacoast Banking Corp. of Florida, based in Stuart, Florida, has focused on building an in-state franchise, almost doubling the size of the bank since 2015. Organic growth drives long-term value for shareholders, with M&A as an accelerant, according to CEO Dennis Hudson III. He views the bank’s M&A strategy as “opportunistic,” but there’s no doubt that the $6.9 billion asset bank is realizing more tangible results and has completed more deals than other similarly self-described acquirers.

In favoring small, low-risk transactions, Seacoast benefits from a Florida market where most of the large banks based in the state have been gobbled up. What seems to set Seacoast apart from your standard opportunistic acquirer is the bank’s ability to execute. Seacoast typically closes a deal on Friday and completes the integration over the weekend. When Monday morning rolls around, the acquired bank opens its doors as Seacoast.

“We’ve proven to the market, with the deals that we’ve done, that we’re successful at wringing out cost and delivering value,” says Hudson. “We have a whole series of playbooks that we run on every deal to help us quickly achieve the earnings accretion that we’ve advertised.”

The bank engages early with the acquired team and uses robotic process automation to get the integration right; Seacoast doesn’t rely on third-party vendors or the core provider. The bank also places a high value on data analytics. This means examining the acquired customer base, identifying high-value customers and putting a team in place to engage and guide them through the integration. For example, a small business that deposits checks weekly could be better served through the bank’s digital channels; if Seacoast has to close their nearby branch as part of the integration, the bank is less likely to lose that business, which now interacts with them digitally.

“It’s really all about the customers and the people and the organization at the end of the day, and then in terms of the execution, having clarity,” says Hudson. Critical to success, he says, is “having clear expectations up front in terms of what we are going to accomplish, and then having a plan in place [so] there’s a 99% probability that we will achieve that plan without damaging the customer base.”

To examine the banks with the best M&A strategy, we focused on acquirers that purchased more than three banks from Jan. 1, 2016, to June 30, 2018. To identify the top five acquirers, we examined return on assets and return on equity as of the first quarter 2019, as well as share price appreciation from each bank’s initial acquisition in the examined time period.

From there, we analyzed profitability growth at each bank, measured through earnings per share, return on average assets and return on average equity from year-end 2015 through year-end 2018. Over the same period of time, we looked at improvement in the bank’s efficiency ratio and credit quality, measured in nonperforming loans as a percentage of loans, as well as growth in tangible book value per share. We also examined lending efficacy, based on the bank’s loan-to-deposit ratio as of second quarter 2019, and incorporated input from bank analysts in the final scoring.

Seacoast topped the ranking and exhibited the highest level of EPS growth, at 109%, and ROAA growth, at 65.8%. It also grew tangible book value by 32.6%.

Naturally, Seacoast isn’t the only bank skilled at serial acquisition. Ranked second, its larger Florida rival, Winter Haven-based CenterState Bank Corp., boasts similar metrics, growing EPS by 107% and TBV by 30.5%.

“CenterState has been quite the growth story over the last decade,” says Brady Gailey, a managing director at Keefe, Bruyette & Woods. The bank has grown from $4 billion in assets at the end of 2015 to $17.4 billion as of the third quarter 2019. Its strategic acquisitions in Florida have given way to deals in Georgia and Alabama to create a southeastern U.S. franchise.

Kalispell, Montana-based Glacier Bancorp, which has a reputation for “buying good banks in good markets with good people,” ranked third. The $13.7 billion asset bank seeks similar cultures and markets with the goal to retain key talent, says Andrew Liesch, a managing director at Sandler O’Neill + Partners. The leadership team develops long-term relationships with bank boards in desired markets so when they decide to sell, Glacier’s on their mind.

Wintrust Financial Corp., with $34.9 billion in assets, is the largest serial acquirer identified in our ranking but, like Seacoast, it prefers small, low-risk deals. “It’s a strategy where if they can do a handful of deals — three [to] four deals — then collectively, those deals can become more meaningful,” says John Rodis, director, banks and thrifts at Janney Montgomery Scott. The Rosemont, Illinois-based bank place fourth in the ranking.

Rounding out the top five is Dallas-based Triumph Bancorp, with $5 billion in assets. Historically, Triumph has largely been focused on one goal when it comes to acquiring banks: building its core deposit base through rural banks with low loan-to-deposit ratios, according to Brett Rabatin, a senior research analyst at Piper Jaffray. Since 2015, Triumph has acquired four institutions and nine branches in Colorado. These acquisitions fuel Triumph’s commercial finance business lines, including its highly profitable transportation factoring portfolio.

No matter their strategy, serial acquirers that execute deals well demonstrate a high level of discipline, says Crowe Partner Rick Childs. “[These banks] treat M&A like it’s a line of business,” he says. That requires the appropriate resources, people, systems and advisors. “It’s so intentional; it’s part of their strategy and their growth plan, and they treat it accordingly.”

How They Ranked: Best M&A Strategy

ACQUIRER NAME, LOCATION / ASSET SIZE # OF DEALS
(1/1/16-6/30/18)
EPS GROWTH SCORE
1 Seacoast Banking Corp. of Florida
Stuart, FL / $6.9 billion
5 109.1% 1.40
2 CenterState Bank Corp.
Winter Haven, FL / $17.4 billion
7 107.1% 1.98
3 Glacier Bancorp
Kalispell, MT / $13.7 billion
4 40.9% 2.45
4 Wintrust Financial Corp.
Lafayette, LA / $31.7 billion
4 100.0% 2.54
5 Triumph Bancorp
Dallas, TX / $5.0 billion
4 29.3% 3.71

SOURCES: S&P Global Market Intelligence, bank filings