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Umpqua Holdings' agreement to buy Sterling Financial is the latest in a series of deals this year to pair similarly sized banks, creating a new crop of midsize financial institutions.
September 12 -
Heritage has agreed to pay $44.2 million for Valley Community Bancshares in Puyallup, Wash., the holding company for the $242 million-asset Valley Bank, the companies announced Tuesday.
March 12 -
John W. Allison of Home BancShares finally got Liberty Bancshares to blink after 10 years of trying to buy it. Allison's persistence and the high multiples on Home's stock helped seal the deal.
June 26 -
Two large community banks merging in South Carolina could create the next Southeast regional player and acquirer of choice.
February 20 -
The combination of Mercantile and Firstbank is expected to break the bank M&A logjam in Michigan. The combined company will be on the lookout for more deals, executives say.
August 16
Everyone is looking for their someone special these days.
Amid the buzz around Sterling Financial (STSA) in Spokane
Heritage Financial (HFWA) in Olympia, Wash., coming off a few small acquisitions, is looking for the big one, says Tim O'Brien, an analyst at Sandler O'Neill, who accompanied a group of investors to meet with banks in the Pacific Northwest last week.
"Management expressed more than once in the meeting that the company is now interested in doing a 'transformational' deal," O'Brien wrote in a research note last week. The $1.4 billion-asset Heritage is looking for banks with assets ranging from $700 million to perhaps a company roughly its own size. "Management sounded determined to stick to deals within its target footprint that runs along the I-5 corridor from Bellingham [Wash.] to Eugene [Ore.], but it sounded both more confident and keen on tackling a larger transaction than it has made in recent years."
O'Brien says the message coming out of Washington Banking (WBCO) in Oak Harbor was similar: after a few years on the sidelines following failed-bank acquisitions, it is ready to do something big.
"There was a clear shift in gears during the discussion of M&A prospects, and for a moment we were struck by an eerie sense of deja vu that brought us directly back to our recent meeting at [Heritage] as management said the company is now also looking to do larger deals that could prove transformative in nature," O'Brien said in a separate research note.
The $1.6 billion-asset Washington Banking told O'Brien it is in discussions with three local institutions that have solid credit quality and more than $500 million in assets.
A call to Washington Banking was not returned; Heritage Chief Executive Brian Vance was unavailable, an assistant said; and O'Brien declined to comment beyond his research notes.
Other observers of the companies say it makes sense that the two companies are looking for larger acquisitions. There have been several transformational deals this year that pair similarly sized institutions.
The Umpqua-Sterling deal, which was rumored for about a week and a half before its announcement last Wednesday, also may inspire others to pair up. "Most banks are at this crossroads right now - do we stay independent or do we sell?" says Joey Warmenhoven, senior vice president of investment bank McAdams Wright Ragen. "A lot are still having a hard time with loan growth, so it might be easier to go with one big chunk in a landmark type of deal instead of buying several few-hundred-million-asset banks."
Bankers like Vance, the Heritage CEO, might be looking for bigger deals out of frustration with the pace of deal activity. For banks that raised money to buy others, the pace of consolidation has been a drag.
"I do think consolidation is going to happen, but it has been delayed," Vance told American Banker in March, after the company announced it would
The problem with wanting a big deal, Warmenhoven says, could be the lack of available targets that fit the profile.
For Heritage and Washington, that raises the question if the two could find what they are looking for in each other. Several sources said they were unaware of any specific conversations between the two companies. Still, the pairing could be appealing, several noted. Heritage skirts Seattle on the south, while Washington's Whidbey Island Bank is on the city's northern outskirts.
"You have one looking to go north and another looking to go south. Do they make sense? Maybe," says Robert Rogowski, director of investment banking for McAdams in Seattle. "But there are other parties out there that make sense, too."
Though some banks might want to structure deals that resemble a merger of equals, they can be the most difficult to execute, Rogowski and Warmenhoven said. Traditionally, mergers of equals are done at a low premium.
"They can be a great idea, but it always comes down to things like social issues, who keeps their jobs [and] what's the valuation going to be," Warmenhoven says.
