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Independent Bank Group (IBTX) in McKinney, Texas, has agreed to buy Live Oak Financial Corp. in Dallas.
August 22 -
Independent Bank Group has agreed to buy Collin Bank, the first acquisition for Independent since it raised $87 million in an April initial public offering.
July 19 -
Prosperity Bancshares in Houston rarely participates in auctions, but CEO David Zalman was confident enough of his offer for FVNB to the bank solicit another bid. Zalman won, and Prosperity's investors embraced the result.
July 2 -
Independent Bank Group in McKinney, Texas, was already a busy buyer. Now with nearly $90 million of fresh equity and a valuable stock, the bank is looking to more than double its size over the next five years.
May 7 -
Shares of Independent Bank Group (IBTX) in McKinney, Texas, rose nearly 13% during their first day of trading.
April 3
Valuing bank M&A is as much about the industry as it is about the target, and the industry is all about earnings right now.
Take Independent Bank Group's (IBTX) recent
But viewed another way as 16.3 times BOH's earnings for the last 12 months the deal is right in line with others, if not a bit of a bargain. The median price-to-earnings multiple for deals in Texas this year is 17.7, according to data from Evercore Partners.
"It is a big price to pay on tangible book, but if you look at it as a multiple of earnings, it is not that expensive," says Brady Gailey, an analyst at Keefe, Bruyette & Woods. "They are getting into one of the hottest markets with a deal that is nicely accretive to earnings for a reasonable price. This is a big deal for them."
The M&A market was traditionally valued by price to earnings, but in the years following the financial crisis the focal point shifted to tangible book value. Put bluntly, it is tough to value a deal to earnings when a bank is losing money or has embedded losses in its portfolio, as was the case with so many institutions. However, the industry has mostly healed, and deal followers say it is time to refocus on profit because that's what ultimately matters in dealmaking.
"Valuing a company based on the amount of money it is earning is the ultimate measure," says Daniel Bass, a managing director at Performance Trust Capital Partners. "Valuing a deal by book has so many components overcapitalized, undercapitalized, types of capital. But earnings are, well, earnings."
The market seemed to agree. Shares of Independent,
You get what you pay for, says David Brooks, the chief executive of the $1.9 billion-asset Independent. BOH's Bank of Houston unit is five years old and is approaching $1 billion in assets. It has increased its loans by a compound annual growth rate of 18.3%. Independent is planning for a 12% boost to earnings in 2014 and 20% in 2015 from the BOH deal.
Cost savings are expected to be 20%, which analysts say is a decent amount for an out-of-market acquisition.
"We are paying a good price for their earnings; the deal is fully priced, but fairly priced," Brooks says.
Further, part of the appeal of BOH is in what it doesn't have: an energy lending team in Houston, one of the busiest energy markets in the country. Independent has one and the ability to pair it with BOH was a major part of the attraction, Brooks says.
"It is a huge upside of this deal. They have strong and deep relationships with their borrowers, and we get to come in and overlay that with our energy practice," he says.
The deal is the third, and largest, for Independent since it raised $90 million in its initial public offering. The plan at the time was to become a $5 billion-asset company within five years, but given the company's success in organic growth and its ability to find acquisitions, it is on track to reach $4 billion at the end of the 2014. It will likely hit $5 billion within three years, Brooks says.
Independent is smaller than some of its acquisitive rivals but has used that differential to its advantage; it bought a handful of small banks leading up to its IPO. As a smaller player, community bank deals that buyers like the $16 billion-asset Prosperity Bancshares (PB) would have looked beyond were potential needle-movers for Independent.
Though BOH is significantly larger than its prior deals, Independent has not lost interest in smaller transactions, Brooks says.
"This is clearly a large deal that gives us a significant footprint," Brooks says. "But we will continue to look for opportunities in that $200 million- to $2 billion[-asset] range. There are up to a couple of hundred banks that fit that size component, with the vast majority in the $200 million to $500 million range."
