Sidhu, Old M&A Hand, Is Back in the Hunt

With an overflowing pot of capital at his small New Century Bank, Jay S. Sidhu is ready to make some big deals.

The former Sovereign Bancorp Inc. chairman and chief executive is looking to buy failed banks in Pennsylvania, Maryland and New Jersey. Yet while Sidhu is an experienced acquirer, analysts said he is embarking on a tough climb, because relatively few banks are expected to fail in the region and plenty of others are ready to take them over when they do.

Yet the $43 million of fresh capital that New Century announced it raised last week indicates that Sidhu has serious plans for acquisitions, even if he needs to get into tugs-of-war with others in the region.

"Some people worry about competition, I say we are living in America, not Russia. I love competition. The best opportunities come when you are dealing with competition," Sidhu said in an interview Thursday. "We think there is room for a few of us to be successful and we plan on being one of them."

Analysts said that like several healthy companies across the country sitting on capital, Sidhu's $352 million-asset New Century appears to be motivated by the advantages of buying failed banks. He'll have plenty of company, however.

"Everyone is seeking failed-bank deals. They are cheap and have little risk. But in places like Pennsylvania, the possibilities are limited," said Richard D. Weiss, an analyst at Janney Montgomery Scott LLC. "There are a lot more buyers than there are failing institutions in this part of the country."

Matthew Anderson, a partner with Foresight Analytics LLC, a market research firm in Oakland, Calif., estimates that 18 banks in the three states Sidhu is targeting could be headed toward failure, compared with 83 ailing banks in Florida.

Sidhu conceded that his targeted region provides fewer chances for picking up distressed banks than areas in the Southeast, but he predicts he will acquire some soon.

"We think there is a huge opportunity to execute on a selective roll-up strategy with FDIC-assisted deals in Maryland, New Jersey, Pennsylvania," Sidhu said. "Based on the opportunities we see, we'd be crazy if we hadn't done one or two of them by yearend."

Further, Sidhu said he sees more than enough opportunity close to home. "I don't consider 18 to be limited at all," he said.

Sidhu's expected rivals include the $1.4 billion-asset Tower Bancorp Inc., which has already struck bank acquisition deals in the past year. It is looking to do other deals, brokered through the Federal Deposit Insurance Corp., within a two-hour radius of its headquarters in Harrisburg, Pa.

The competition seems to energize Sidhu. He points to the nearly 40 deals he struck as he was building Sovereign from a $500 million-asset thrift into a $90 billion regional powerhouse. The company was sold to Banco Santander SA last year.

Sidhu said New Century is better positioned than others given its clean balance sheet, abundance of capital and his acquisition background.

"There aren't too many smaller institutions who have 30% total risk-based capital," he said. "We also have access to another $100 million, so capital is not a problem for us at all and that is a wonderful place to be in."

Sidhu's proven willingness to bid up deals could help New Century emerge as an acquirer of choice in its market, analysts said. "I don't see him overpaying, but I would expect him to be competitive in his pricing," Weiss said. "That is his style. If there is an acquisition he wants and others are pursuing it, he will get competitive."

Sidhu said he that although he plans to be competitive in pricing, he does not expect to pay a premium on anything. He is looking only for deals at or below tangible book value, and that means so-so performers are unlikely takeover candidates.

"You might get one of those banks at 75% of tangible book value, but the problems could turn out to be so significant that you really paid two times its book value," Sidhu said.

Several clean community banks are already on his radar.

"We are looking for those 'one plus one equals three' situations," he said.

Sidhu insists that the company doesn't have an asset-size goal. It is focused on growth that gives its shareholders a return of three to five times their investment over five years, he said.

He also isn't ditching an organic growth strategy. He said that as of Dec. 31 New Century had added $84 million in low-cost deposits and $85 million in assets compared with a year earlier.

"We are well on our way in executing on our organic growth story, but at the same time we see a huge opportunity out there," he said.

Sidhu resigned from Sovereign under pressure from the board in late 2006 when the company began to show weakness. Yet analysts typically view Sidhu as a smart leader and say he should have sold Sovereign earlier.

"That stock fell on hard times," said Matthew Schultheis, an analyst at Boenning & Scattergood Inc. "He held on for too long."

Sidhu had a noncompete agreement that expired last January. In June he led a $17 million investment in New Century, becoming its chairman and CEO. Though he insists that he is not looking to build a second version of Sovereign, in the past six months he has recruited nearly a dozen members of its former top management to join him at New Century.