-
A thrift's unusually structured deal to take over a nonbank commercial lender encapsulates the key challenges facing both sectors: capital for the depositories and funding for the finance companies.
October 27
One acquisition probably will lead to others for Everbank Financial Corp. in Jacksonville, Fla.
The company, with $7.7 billion of assets, announced last week that it had closed its deal to buy Tygris Commercial Finance Group, a commercial finance and specialty lender.
The deal pumped $535 million of capital into Everbank, which plans to keep growing at a robust pace while scouting for similar acquisitions.
Banks nationwide are struggling to find capital, and many — like Everbank — face obstacles as investors have grown leery of banking. The Florida company was fortunate to add capital through this acquisition, which also diversifies its revenue stream. The privately held company had limited options because it lacks access to the public markets.
Though other banks have worked out deals with the Federal Deposit Insurance Corp. that improved their capital positions through payments to take over a failed bank, few private deals have had such a dramatic effect on a company's capital as Everbank's purchase of Tygris, industry watchers said.
"I like the capital component that is being brought into play," said Geri Forehand, the director of strategic services at the consulting firm Brintech Inc., which is a unit of United Community Banks Inc. in Blairsville, Ga. "At $7 [billion] or $8 billion, to keep Everbank a private company, unless they have access to some wealthy individuals, it would be really difficult because they couldn't go out and do a public offering and access the public markets."
Tygris is to be operated as a division of Everbank's thrift subsidiary and is expected to provide additional avenues for cross-selling products.
Everbank has bulked up in recent years. It had a $100 million capital infusion in 2008, and its asset size has grown about 40% from the end of 2007 through the end of the third quarter in 2009. (Everbank has not yet reported fourth-quarter results.)
Robert Clements, the company's chairman and chief executive officer, said in an interview last week that it was unclear whether the company could have raised as much capital in any other way that would have been as attractive. After the acquisition, Everbank's leverage ratio is a healthy 10%. and its total risk-based ratio is 18%.
"It gives us a significant amount of additional capital to allow us to grow our core business lines to increase small-business lending and consumer lending activity," Clements said. "It also positions us to pursue future acquisitions going forward. It gives us a new business line that complements our existing business lines. We view the Tygris commercial leasing business as being well-positioned for growth and a good platform with experienced and talented management."
As part of the deal, Tygris' owners took a stake in Everbank, with none holding more than 9% in order to avoid raising control issues.
Industry watchers noted that successfully navigating such a deal's complexities often depends on bank executives' ability to give the seller's management some autonomy but at the same time ensuring that the company and bank do not shoulder too much risk. Banks sometimes unwisely fail to give acquired nonbank lenders enough room run their business, analysts said.
"Effectively, they try to run the finance, leasing or insurance company like a bank," Forehand said. "The cultures are totally different. If they let it run like it has been run and they don't try to put the bank culture into the finance company's culture, they will be OK."
Clements said Everbank would try to make further acquisitions similar to the Tygris deal.
"We will continue to look at other specialty finance companies and business lines," he said. "We'll also look at bank acquisitions. The profile that would be attractive to us is a narrower profile because of the current business composition."
Nickolas Barbarine, the principal director of investment banking for the Southeast at Hovde Financial LLC, said that Everbank would be wise to invest its capital in a Florida branch network.
"They have a very unique business model, and clearly, with this merger, they now have a tremendous amount of capital," he said. "In this market, that typically means tremendous opportunities."
