With large banks mostly out of the M&A game, the market has been advantageous for midsized acquirers. These banks are in a sweet spot of sorts for dealmaking — many of them are bulking up to rationalize operations and enhance their products and services. There have been a number of targets available in the size they’re seeking, generally 10% to 20% of the buyer’s assets. And many are publicly traded and can leverage their currency to tempt liquidity-seeking private sellers.
But unlike the large bank acquirers, these mid-sized dealmakers have focused on filling in or expanding to markets closer to home.
“[Buyers of this size are] more interested in building out the franchise, and the size and the efficiencies [of the target], so they’ve probably been more of a true consolidator in-market,” says Rick Childs, a partner at Crowe LLP. “I think that’s one of the reasons why they have been successful.”
Bank Director examined growth in return on assets following the close of the transaction to select the five best mid-sized bank deals, where the acquirer has $1 billion to $15 billion in assets. (We focused on deals where the seller comprised at least 10% of the buyer’s assets to ensure the acquisition had a material impact.) To rank these deals, we then further analyzed 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 net charge-offs and nonperforming loans as a percentage of loans; growth in tangible book value per share; and lending efficacy, based on the acquirer’s loan-to-deposit ratio one year after the deal closed. We also considered geographic expansion, acquired talent and deal drawbacks, and bank analysts were consulted.
Two of the acquiring banks on this list, Winter Haven, Florida-based CenterState Bank Corp. and Kalispell, Montana-based Glacier Bancorp, are also featured in the Best M&A Strategy category, which looked specifically at active acquirers.
“It’s consistent with the $1 billion to $15 billion space — many of them are trying to build themselves up to get to that point where they can get into doing significant deals,” says Childs. “Their dance card is big, and they’ve had a lot of dances with a number of people.”
CenterState ranked first in the mid-sized category for its acquisition of Fort Pierce, Florida-based HCBF Holding Co., with $2.2 billion in assets. The acquisition expanded CenterState’s franchise through central Florida and accelerated its growth in retail mortgage.
CenterState “did a good job of building out their overall footprint in Florida through their M&A transactions; that deal in particular built them through the middle of the state, in that I-4 corridor where everyone has said they want to be,” says Stephen Scouten, a managing director at Sandler O’Neill + Partners.
The $17.4 billion asset bank rated highly for profitability growth, and efficiency, credit quality and tangible book value improvement. (It also acquired $944 million asset Sunshine Bancorp on the same day; while this smaller deal was not examined directly, it most likely contributed to the acquirer’s financial performance.)
Effingham, Illinois-based Midland States Bancorp, which has 13 locations around St. Louis, prefers in-state transactions or opportunities that are no further than 100 miles within contiguous states. Its acquisition of $1.2 billion asset Alpine Bancorp., based in Belvidere, Illinois, expanded Midland’s footprint in northern Illinois and placed second in our ranking of mid-sized bank deals.
Midland exhibited the highest level of profitability growth among the acquirers examined. The bank views M&A as an important strategic initiative, but its acquisition of Alpine came out of the blue for the $6.1 billion asset acquirer’s leadership team.
Midland had recently purchased $976 million asset Centrue Financial Corp., based in Ottawa, Illinois, when Alpine Chairman R. Robert Funderburg Jr. called now-retired Midland CEO Leon Holschbach to ask if he’d be interested in acquiring his organization. “We were coming right out of the Centrue acquisition; the plan was to integrate and take a little bit of time off before doing the next large acquisition, but when [Funderburg] made that call — banks only get sold once,” says Jeffrey Ludwig, the president and CEO of Midland, who served as chief financial officer at the time. The opportunity to gain top market share in Rockford, Illinois, along with a strong core deposit franchise and expansion of Midland’s wealth management business, was too attractive to pass up.
Glacier Bancorp, with $13.7 billion in assets, ranked third for its acquisition of $1 billion asset Inter-Mountain Bancorp. The deal strengthened its market share in Montana, particularly in fast-growing Bozeman, as well as the agricultural market in the northern part of the state.
Ranked fourth, $12 billion asset TowneBank’s acquisition of Paragon Commercial Corp., based in Raleigh, North Carolina, stands out for expanding the bank’s market share in North Carolina, as well as its integration of talent: Several board members and executives have stayed on with TowneBank following the deal’s closing. The Portsmouth, Virginia-based bank’s tangible book value improved by 8.6% a year after the deal closed, putting its performance just behind CenterState in that metric.
Finally, Olney, Maryland-based Sandy Spring Bancorp exhibited the strongest improvement in its efficiency metrics. Its acquisition of $2.1 billion asset WashingtonFirst Bankshares, based in Reston, Virginia, filled in the $8.4 billion asset acquirer’s footprint in the Washington metro area and northern Virginia, and produced the highest cost saves of the examined deals, at 39%, due to overlapping branches. At 227% of tangible book value, it was the priciest deal of the bunch, but Catherine Mealor, a managing director at Keefe, Bruyette and Woods, says the price may have been justified. “Strategically, it was very important to them,” she says. “There weren’t many banks of size — over $2 billion in assets — left in the D.C. market.”
How They Ranked: Best Mid-Sized Bank Deal
|ACQUIRER NAME, LOCATION / ASSET SIZE||TARGET NAME, LOCATION / ASSET SIZE||DEAL DATE||SCORE|
|1||CenterState Bank Corp.
Winter Haven, FL / $17.4 billion
|HCBF Holding Co.
Fort Pierce, FL / $2.2 billion
|Jan. 1, 2018||1.90|
|2||Midland States Bancorp
Effingham, IL / $6.1 billion
Belvidere, IL / $1.2 billion
|Feb. 28, 2018||3.07|
Kalispell, MT / $13.7 billion
Bozeman, MT / $1 billion
|Feb. 28, 2018||3.13|
Portsmouth, VA / $12.0 billion
|Paragon Commercial Corp.
Raleigh, NC / $1.7 billion
|Jan. 26, 2018||3.20|
|5||Sandy Spring Bancorp
Olney, MD / $8.4 billion
Reston, VA / $2.1 billion
|Jan. 1, 2018||3.42|
SOURCES: S&P Global Market Intelligence, bank filings