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Anumber of bankers in the South are actively pursuing deals, but M&A couldbe facing headwinds in some markets, particularly in Texas.
Closeto 20 banks based in the South recently presented at the Gulf South BankConference on May 2 and 3, and made it clear that they consider M&A a corepiece of their growth strategy. However, even as bankers expressed a desire toacquire other banks, they cited a number of issues that are preventingtransactions from being announced, including concerns over pricing, a lack ofwillingness from sellers, and concerns over targets' energy lending exposure.
M&Aactivity in the states of the Gulf South bankers — which spanned across Texas,Louisiana and the Southeast — has declined in 2016 when compared to year-agolevels. SNL data show 18 deals have been announced in those states through May3, for an aggregate deal value just over $500 million. That compares to 25deals announced for an aggregate value of $1.85 billion during the same periodof 2015, or just over $1 billion in aggregate deal value when excluding thesizable $847 million sale of Square 1 to PacWest Bancorp. Deal pricing in the region has declinedas well, falling to a median price-to-tangible book value of 124.8% from 140.9%a year ago.
BankM&A pricing has fallen across the U.S. this year as bank stock currencieshave declined, but the number of deals and the aggregate deal value announcedin 2016 has been virtually flat with the same time frame in 2015, according toSNL data.
Bankerspresent at the Gulf South Bank Conference said M&A chatter remains healthy,though they suggested that there is a spread between buyers' offers andsellers' asking prices. That divide almost always exists, but it might havegrown over the last year with buyers' currencies falling in value during thefirst few months of 2016.
RichardMoore, CEO of Southern Pines, N.C.-based First Bancorp, noted at the Gulf South event that anacquirer bank cannot buy what is not for sale.
"Thereare a lot of poorly run businesses in this space. I don't know where theshareholder voice is, but not in the boardroom," he said at theconference.
M.Ray "Hoppy" Cole Jr., vice chairman, president and CEO ofHattiesburg, Miss.-based FirstBancshares Inc., said there is a lot M&A chatter occurring, buthe noted that many of the potential targets in his market have long historiesand are not always quick to sell.
"Convincinga 100-year-old franchise to sell is a difficult thing," Cole said at theevent.
Coleexpects more opportunities to eventually arise as bank boards and managementteams begin to accept that heightened regulatory costs and lower interest rateswill persist for some time.
JimmyTallent, chairman and CEO of Blairsville, Ga.-based , said atthe conference that M&A conversations cooled down early in 2016 amid thevolatility in the markets. The executive believes more opportunities willeventually come his way, noting that liquidity needs rather than the regulatoryenvironment likely would drive sales of smaller institutions.
Otherbankers said merger talks remain healthy even if buyers and sellers cannotagree to terms. Some bankers emphasized that they are willing to remain patientfor the right transaction and do not need M&A to bolster their growth.
Forinstance, Daryl Byrd, president and CEO of Lafayette, La.-based , a historicallyacquisitive institution, said he feels "no pressure" to make anyacquisitions. He acknowledged that the company would love to have a bettercurrency to pursue deals, but remains in the enviable position of having strongorganic growth opportunities in its core markets.
Byrdand Home BancSharesInc. Chairman John Allison both highlighted that they have seensome recent transactions where valuations seemed too high. Allison said HomeBancShares, a very active acquirer that primarily operates in Arkansas andFlorida, made offers for three franchises last year, but was by other buyers.
"Thefrustrating part for me is to watch these guys spend other peoples' money anddilute themselves into infinity," Allison said at the event.
WhileAllison and other bankers across the Southeast seemed to think that moreM&A opportunities will emerge, bankers in Texas, where deal activity hasslowed more considerably along with continued pressure on oil prices, expressedgreater apprehension. SNL data shows that just three bank deals have been announcedin Texas thus far in 2016, down considerably from eight transactions announcedduring the same time period in 2015.
Buyersin the Lone Star State seem to be pursuing deals with greater caution giventhat many sellers might have exposure to the oil and gas business. Whilebankers in Texas in attendance at the Gulf South event were encouraged by therecent stabilization in oil prices, they noted that much uncertainty remains.
JeremyFord, president and CEO of Dallas-based Hilltop Holdings Inc., said at the Gulf South event thathe hopes M&A activity in Texas is not dead. He said deal activity hasreally slowed as buyer interest and seller expectations have grown very farapart. Ford said his company remains on the prowl for "situationaldeals," and continues to look for targets with more than $1 billion inassets.
SamDawson, CEO of Tyler, Texas-based Southside Bancshares Inc., his interest in pursuingacquisitions though noted that pressure on the company's currency limited itspurchasing power early in 2016. Since then, the company's stock has recoveredconsiderably. Dawson said Southside has been "aggressive tirekickers" and would pursue the right acquisition opportunity, thoughprobably would not go after deals in Houston or San Antonio. Those markets arebelieved to have much greater exposure to the oil-and-gas business thanSouthside's markets in Dallas-Fort Worth, Tyler and Austin.
F.Scott Dueser, chairman, president and CEO Abilene, Texas-based , said heis hesitant to buy a bank with direct exposure to the oil-and-gas business.Dueser noted that his company had considered acquiring a bank with energyexposure, but ultimately backed away from the merger talks. The executive saidhe would still consider new deals, including in Oklahoma and New Mexico, thoughhe noted that he was glad that he had passed on some potential acquisitions.
"Itis a little more on pause," Dueser said of M&A activity. "Onseller side, they think they can get more if they go through this. The buyerside is more cautious."