Top bank M&A deals of 2018

December 23, 2018 10:00 PM

Bank M&A was sporadic in 2018.

Three of the biggest bank deals — Fifth Third Bancorp’s agreement to buy MB Financial, Cadence Bancorp’s deal for State Bank Financial and Independent Bank Group’s deal for Guaranty Bancorp — were announced within a nine-day period in the spring.

The remaining seven deals in the top 10 were spread throughout the year.

Overall, there were 253 deals announced as of Dec. 7, based on data compiled by Keefe, Bruyette & Woods and S&P Global Market Intelligence — virtually the same number as last year.

The combined value of all deals as of early December — $28.6 billion — was 8% higher than the total for the full 2017. However, the Fifth Third-MB Financial deal accounted for 16% of the $28.6 billion.

An underlying theme involved sellers in high-growth markets finding buyers willing to pay healthy premiums for market share.

The average premium in 2018 was 172% of the seller’s tangible book value, an increase from 165% in 2017.

Only two deals in the top 10 occurred in one state — Colorado.

Here is a breakdown of the biggest bank acquisitions of 2018.

BUYER: Fifth Third
SELLER: MB Financial
DEAL VALUE: $4.6 billion
ANNOUNCED: May 21
STATUS: Pending

Fifth Third in Cincinnati made a big splash with its first bank deal in a decade.

Its agreement to buy the $20 billion-asset MB Financial would be the biggest bank acquisition since Royal Bank of Canada bought City National in 2015. The deal also ranks among 2018’s biggest in terms of the premium: MB Financial is expected to sell for 276% of its tangible book value.

The $142 billion-asset Fifth Third will hold about 6.5% of Chicago’s deposits once the deal closes. Management also projects that the company will have a fifth of Chicago’s middle-market relationships.

“There were no other potential partners of the same caliber as MB Financial in the Chicago market,” Greg Carmichael (pictured), Fifth Third’s chairman and CEO, said in a release announcing the deal. “We view MB Financial as a unique partner in our efforts to build scale in this strategically important market.”

The acquisition has drawn some skepticism, largely due to aggressive cost-cutting plans and the roughly seven years it will take to earn back expected dilution to Fifth Third's tangible book value.

BUYER: Synovus Financial
SELLER: FCB Financial
DEAL VALUE: $2.9 billion
ANNOUNCED: July 24
STATUS: Expected to close in the first quarter

The purchase of FCB Financial in Weston, Fla., would also mark a return to large-scale M&A for Synovus Financial in Columbus, Ga.

The once-aggressive acquirer had been largely idle since the financial crisis; FCB would be its first traditional bank acquisition since 2006.

It was also one of the first major bank deals to be announced after lawmakers raised the asset threshold for becoming a systemically important financial institution.

The $32 billion-asset Synovus is poised to gain nearly $10 billion in deposits and 50 branches in Florida, a market that stung the company when the housing bubble burst a decade ago. Still, management stressed that it had learned lessons from that downturn.

“The real story … is that we have been very patient and very disciplined so that if the right transaction presented itself, we could act,” Kessel Stelling, Synovus’ chairman and CEO, said in an interview after the deal was announced. “We said it had to be strategically compelling and then it had to meet some very stringent financial criteria.”

Synovus, which agreed to a deal that valued FCB at 230% of its tangible book value, turned out to be FCB’s only bidder. One issue could have been FCB’s size. At $11 billion in assets, it had a limited range of banks that would have been in a position to make a deal happen.

BUYER: WSFS Financial
SELLER: Beneficial Bancorp
DEAL VALUE: $1.5 billion
ANNOUNCED: Aug. 8
STATUS: Expected to close in the first quarter

While most acquirers are content to let cost savings trickle down to the bottom line, WSFS in Wilmington, Del., will use the purchase of Beneficial to reinvent itself.

WSFS will nearly double in size, to $15 billion in assets, and it will become a major player in Philadelphia, where Beneficial is based. The deal also had the lowest premium among the year’s biggest deals, pricing Beneficial at 172% of its tangible book value.

The most compelling aspect of the deal — and something that other acquisitive banks may study closely — is how WSFS will use a big portion of the acquisition's expense savings to fund more than $30 million in technology upgrades.

“This combination allows us to address the question in every bank's boardroom — that is how and when are we going to adjust to the new realities of banking delivery to meet the changing customer behavior and their needs?” Mark Turner (pictured), the buyer's chairman and CEO, said during a conference call to discuss the deal.

Shareholders have been reluctant to buy into the ambitious plan. WSFS shares are down nearly 30% since the announcement. Still, Turner’s bold vision helped him become one of American Banker’s Community Bankers of the Year for 2018.

BUYER: Cadence Bancorp.
SELLER: State Bank Financial
DEAL VALUE: $1.4 billion
ANNOUNCED: May 13
STATUS: Expected to close in the fourth quarter

Paul Murphy (pictured) had long coveted State Bank Financial in Atlanta, but the timing was never right.

That changed in May when the $12 billion-asset Cadence agreed to buy State Bank in a deal that priced the seller at 250% of its tangible book value.

Cadence and the $5 billion-asset State Bank first discussed a merger in March 2014 and even entered into a confidentiality agreement a year later. Another stab at a deal stalled when Cadence instead decided in 2017 to move forward with an initial public offering.

“When we went public a year ago, we said we wanted to be active with M&A,” Murphy said when Cadence announced the deal “We said we would be selective and that we were looking for a gem. We found a gem with State Bank.”

Cadence plans to make a big commitment to Atlanta. It will move its bank’s headquarters, along with executive Sam Tortorici, to the city. Joe Evans, State Bank’s chairman and American Banker’s Lifetime Achievement honoree this year, will become Cadence’s vice chairman.

Atlanta has been a hot market for bank M&A. At least five other banks in the area have agreed to be sold this year.

City of Denver Colorado with morning sun star

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BUYER: Independent Bank Group
SELLER: Guaranty Bancorp
DEAL VALUE: $1 billion
ANNOUNCED: May 22
STATUS: Expected to close in the fourth quarter

Independent Bank in McKinney, Texas, had no intention of expanding outside its home state until it gained a few stray branches in Colorado last year. Management, pleased with early returns in the state, agreed in May to buy the $4 billion-asset Guaranty.

Guaranty, based in Denver (skyline pictured), will greatly increase the size of Independent’s balance sheet in Colorado. Total loans will jump from $400 million to $3.2 billion. Deposits should increase from $278 million to more than $3 billion. More than a third of Guaranty’s 32 branches are in the Denver market.

“This transaction represents the build out of our Colorado footprint through the acquisition of a high-quality bank operating in dynamic markets along the Front Range,” David Brooks, the $9.9 billion-asset Independent’s chairman and CEO, said when his company announced the deal.

The build-out will not be cheap. The acquisition features 2018’s second-highest premium, pricing Guaranty at 319% of its tangible book value, based on KBW data. (The year’s biggest premium — 404% of tangible book value — was part of Meta Financial Group’s purchase of Crestmark Bancorp.)

oil field, the oil workers are working

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BUYER: Veritex Holdings
SELLER: Green Bancorp
DEAL VALUE: $1 billion
ANNOUNCED: July 24
STATUS: Expected to close in the first quarter

Veritex Holdings in Dallas is an experienced acquirer, but its pending purchase of Green Bancorp in Houston presents a unique challenge. Green, at $4.4 billion in assets, is 40% larger than Veritex.

Veritex is the third Texas acquirer on this year’s list, but it is the only one of the three to buy a bank in its home state.

Green “represents a tremendous financial and strategic opportunity,” Malcolm Holland, Veritex’s chairman and CEO, said in a press release announcing the deal. “This merger results in a top-10 Texas-based community bank with virtually all of its franchise in the attractive [markets] of Dallas-Fort Worth and Houston.”

The deal was a fitting final chapter for Manny Mehos, Green’s chairman, and Geoff Greenwade, the bank’s CEO.

The duo spent the better part of two years addressing Green’s energy exposure, reducing the company’s portfolio by nearly 90%. Those efforts likely helped support a deal value that priced Green at 250% of its tangible book value.

Steven Bradshaw is BOK Financial's president and CEO.

BUYER: BOK Financial
SELLER: CoBiz Financial
DEAL VALUE: $978 million
ANNOUNCED: June 18
STATUS: Closed on Oct. 1

BOK Financial’s cash-and-stock purchase of CoBiz boasted one of the year’s healthiest premiums, pricing the Denver seller at 290% of its tangible book value.

The acquisition was announced just weeks after Guaranty, also based in the Mile High City, had agreed to sell itself to Independent Bank Group.

“CoBiz has been on our list for a long time,” Steven Bradshaw (pictured), BOK’s president and CEO, said when the deal was announced. “We have a real appreciation for their credit profile and the way they operate the bank. They look like a small version of us.”

By buying CoBiz, the $38 billion-asset BOK gained a commercially focused bank that operated in Colorado and Arizona with specializations in health care and public finance.

While BOK Financial is relying on cost-cutting to hit its financial targets, management also believes it can rev up fee income at CoBiz. BOK derives about 40% of its revenue from fees, while only a fifth of revenue at CoBiz was tied to noninterest income.

A change in the threshold for systemically important financial institutions also factored into BOK’s decision to do the deal.

“Approaching and crossing the $50 billion-asset threshold prior to the change was an incredibly expensive proposition, and a difficult one," Bradshaw said. "With that threshold moving, you’ll likely see some expanded growth for regional banks like BOK.”

BUYER: CVB Financial
SELLER: Community Bank
DEAL VALUE: $878 million
ANNOUNCED: Feb. 26
STATUS: Closed on Aug. 10

CVB Financial’s purchase of Community Bank in Pasadena, Calif., stayed in the top 10 even though it was announced 10 months ago. That says a lot about the dearth of massive bank acquisitions in 2018.

The acquisition shot CVB above the $10 billion-asset threshold where banks begin to absorbs caps on interchange fees.

When the deal was announced, Christopher Myers, CVB’s president and CEO, touted the combination as a way to add talent and enhance CVB's customer base. Community Bank became CVB’s fifth bank acquisition since early 2009.

Myers still feels good about the deal four months after closing.

“It really is a great strategic acquisition because Community Bank was a very good and very active competitor,” he said in a recent interview. “We both went after the same type of client — small to midsize businesses, business owners and their families. We felt it was a home run to eliminate a competitor and have cost synergies.”

BUYER: CenterState Bank
SELLER: National Commerce
DEAL VALUE: $844 million
ANNOUNCED: Nov. 26
STATUS: Expected to close in the second quarter

CenterState agreed in late November to buy the $4 billion-asset National Commerce. While the seller is based in Birmingham, Ala., the acquisition is largely a move by the $12 billion-asset CenterState to gain more branches in Atlanta.

In many ways, it was a complementary follow-up to its purchase of Charter Financial. That deal, which closed in September, gave CenterState its first commercial banking operations in Georgia and Alabama.

John Corbett (pictured), CenterState’s CEO, has known National Commerce’s management team since 1999, when his bank was a de novo and the executives ran Alabama National. Such rapport led Corbett to offer Richard Murray, National Commerce’s chairman and CEO, and William Matthews V, the seller’s president and chief financial officer, posts at CenterState.

“Trust is something you earn over time,” Corbett said in an interview after announcing the deal. “We’ve had 20 years to build it up — both ways.”

CenterState, which has completed 16 whole-bank acquisitions since late 1999, will likely avoid acquisitions for the foreseeable future.

“Our plan is to land this plane safely,” Corbett said.

The seller, Heritage Southeast Bancorp in Atlanta, has 23 branches across Georgia and northeast Florida.

BUYER: Ameris Bancorp
SELLER: Fidelity Southern
DEAL VALUE: $751 million
ANNOUNCED: Dec. 17
STATUS: Expected to close in second quarter

Ameris found its “crown jewel” in Fidelity Southern in Atlanta (skyline pictured).

The $11.4 billion-asset Ameris felt comfortable enough with the all-stock deal that it will add several Fidelity executives to its management team. James Miller Jr., Fidelity’s chairman and CEO, will become executive chairman at Ameris, while H. Palmer Proctor Jr., Fidelity’s president, will run the combined company’s bank.

Buying Fidelity will push Ameris, based in Moultrie, Ga., above $16 billion in assets.

“This partnership not only strengthens our management team, but also creates a dynamic franchise with the opportunity for quality growth for the foreseeable future,” Dennis Zember Jr., Ameris’ CEO, said in a press release announcing the deal.