The Megaregion and M&A
One of the things I remember fondly about my former life in Texas is the apartment I rented for $600 a month on the Gulf of Mexico. I could buy shrimp from a rickety boat that cruised up to dock weekly; my dinner would come in a plastic bag filled with ice.
I’ve since left the state but much of the country is streaming toward it. The Texas Triangle — the urban region that spans Houston, San Antonio, Austin and Dallas-Fort Worth — is growing faster than any other urban megaregion in the nation, according to an analysis by J.H. Cullum Clark, director of the Bush Institute-SMU Economic Growth Initiative.
He quotes Richard Florida, a professor of urban studies who has written that the most important geographic units aren’t nations or cities anymore. They’re megaregions, vast urbanized areas that sometimes cross state boundaries but feed off each other, becoming engines of innovation and growth.
Banks seem attracted to the megaregion as well. Simmons First National Corp., a $25.1 billion bank based in Pine Bluff, Arkansas, announced on Nov. 19 it agreed to acquire Spirit of Texas Bancshares for a mix of cash and stock in a deal valued at $581 million. That values the $3.2 billion Spirit at about 1.85 times book, a rich premium partly explained by the fact that Spirit is a high-growth franchise in the Texas Triangle, wrote analysts with Piper Sandler & Co.
The deal illustrates that M&A pricing is inching upward as the economic outlook — and stock prices — of buyers and sellers improve. The average price to tangible book value of a bank M&A deal in 2021 through Nov. 16 was 155%, according to the investment bank Hovde Group, using figures from S&P Global Market Intelligence. That’s up from 135% in 2020 and on par with 158% from 2019. Activity also is on the rise and interest is high. Forty-eight percent of respondents to Bank Director’s 2022 M&A Survey claim they they’re somewhat or very likely to buy a bank in 2022.
“There’s pent up demand,” explains Curtis Carpenter, a senior managing director with Hovde Group. The low-interest, low loan growth environment is pushing some banks toward acquisitions. Simmons, for example, has been struggling to find organic growth in its markets, according to the Piper Sandler analysts. “Almost any publicly traded CEO you visit with will tell you they see earnings decline ahead and will try to grow through acquisitions,” Carpenter adds.
Although investment bankers tend to see another deal around every corner, this time, he may be on to something. The Texas Triangle and other megaregions may be the perfect place to look.
• Naomi Snyder is editor-in-chief at Bank Director
