Simmons First Tests Its Ability to Juggle Three Deals

The bases are loaded for Simmons First National (SFNC). The big challenge will involve getting runs across the plate.

The $4.4 billion-asset company agreed Wednesday to buy the $1.1 billion-asset Liberty Bancshares in Springfield, Mo., for $207 million. It is the third acquisition announced this year by the Pine Bluff, Ark., company, which is looking to take advantage of a currency lifted by a distressed bank deal completed last year. Management is also keen to deploy capital raised in 2009.

Taking three deals through the regulatory approval process at once could be an arduous task. Regulators are being particularly judicious in reviewing buyers and sellers, and some deals have led to longer-than-expected wait times.

"Closing deals is becoming more challenging," says Matt Olney, an analyst at Stephens. "That is always the risk. Some of it you can't control and no one is immune to it. With three pending deals, they are busier than most but others have made it work."

Though a tough road, Olney and others say they are optimistic about Simmons First's ability to get the deals approved.

"I think the bank is cognizant of the regulatory issues out there," says Randy Dennis, president of DD&F Consulting, a community bank advisory firm that is familiar with Simmons but not involved in the Liberty deal. "Prior to the downturn, they were a serial acquirer and they understand the importance of telling the regulators what they're thinking about doing."

Still, with the company's assets set to be 130% higher than what they were nearly a year earlier, it might be time for management to tap the brakes.

"If I were the regulators, I would probably think it was time to take a breath," Dennis says. "I'd have some questions about integration."

Simmons First did not return a call for comment, but George Makris Jr., the company's chairman and chief executive, told analysts during a conference call Wednesday that the Liberty deal is likely the last sizable transaction for this year.

"It would be awfully difficult and I don't know that we would be prepared today for another transaction above $1 billion by the end of the year," Makris said. "It could be that there may be some smaller transactions ... but I would tell you our first priority is the integration of these acquisitions between now and the end of the year so that we have a clear path to begin in 2015."

With Simmons First's assets expected to reach roughly $8 billion by the time the deals close, Makris said the company must also think about the $10 billion-asset threshold. At that point, certain regulations, including a cap on interchange fees under the Dodd-Frank Act's Durbin Amendment, would kick in.

Management, however, says it won't let the fear of $10 billion keep it from further deals.

"We need to make sure we are prepared for the additional regulation and other changes as we grow past $10 billion," Makris said. "We still believe there are many opportunities to expand our community banking network and we continue to look for compatible partners as we do not intend for the size of our institution to be a limiting factor."

With the acquisitions of Liberty, as well as the $1.9 billion-asset Community First Bancshares in Union City, Tenn., and the $431 million-asset Delta Trust & Banking in Little Rock, Ark., Makris said Simmons First is looking at a reorganization centered around regions.

Makris also said during the call that the company was considering putting out a regulatory filing with the Securities and Exchange Commission in the next 30 days to address the financial modeling of the deals.

"We just think that it's really important, because of the complexity of [the three deals] and because of all the numbers we have thrown at the market, to put it all together in one form," Makris said.

The analysts said they would appreciate the filing because it would streamline their own modeling.

"They've done a good job in providing cost savings assumptions and accounting adjustments, but with three layered on top of each other, one summary would be helpful," says Brian Zabora, an analyst with Keefe, Bruyette & Woods.

While the company is historically acquisitive, having three pending deals is a bit of reversal compared to recent years. It raised $71 million in 2009 to make acquisitions, among other things.

Simmons First also bought four failed banks from the Federal Deposit Insurance Corp. Accounting items like bargain-purchase gains such deals often build capital. Its tangible common equity ratio was 10.1% at the middle of last year.

The company in September upended an effort by private equity firm Ford Financial to buy the $990 million-asset Metropolitan National Bank in Little Rock, in a bankruptcy auction.

Ford initially bid $16 million. Simmons First paid $53.6 million, an eye-popping price tag for a distressed bank, but management envisioned significant cost-savings and the market endorsed it. Since then, the company's stock has risen 66%, with shares topping $40 on Wednesday.

The run-up gave management a currency to acquire, analysts say. Simmons First's stock trades around 210% of its tangible book value. Simmons First agreed to pay Liberty shareholders 207% of the seller's tangible book value.

"Looking back, it was an excellent deal," Olney says of the Metropolitan purchase.

"It wasn't cheap, but there was a lot more overlap than I or anyone else expected," Olney adds. "And it gave them a currency that allowed them to get more aggressive in M&A. It was the launching pad for all of these other deals."