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Serial acquirers establish bank M&A as a line of business

Kevin Dobbs is a senior reporter and columnist. The views and opinions expressed in this piece represent those of the author or his sources and not necessarily those of S&P Global Market Intelligence.

A pair of proven community bank buyers outlined their keys to consistent deal-making, including open lines of communication with regulators, emphases on retaining targets' top talent, and a perpetual focus on credit quality.

Speaking at Bank Director's annual Acquire or Be Acquired conference in Phoenix this week, Simmons First National Corp. Chairman and CEO George Makris Jr. and Old National Bancorp Chairman and CEO Robert Jones said they long ago made M&A a permanent line of business at their banks to emphasize its importance and ensure that it is staffed with managers focused on balancing the multiple priorities that go into getting deals done right.

"It does require a proactive approach," said Makris, whose company in January announced its third planned acquisition in as many months, a series of deals that, if all closed this year as planned, would catapult it from about $8.4 billion in assets to roughly $13.5 billion.

Makris said that, in identifying targets, Simmons looks at multiple factors, from whether they are in appealing growth areas to whether they have established lenders who are capitalizing on the vibrancy of their markets. Once bank executives determine a seller is attractive, they make sure to inform their board and their regulators, working to ensure any concerns are addressed early to avoid surprises and disappointments late in the process.

"They are well aware of our strategy," Makris said, adding that an informed board and stable ties with regulators are big reasons he is confident Simmons can cinch three deals this year. The Pine Bluff, Ark.-based bank has closed five open-bank deals since 2013.

Jones, whose Evansville, Ind.-based Old National has closed seven open-bank deals since 2011, agreed that consistent communication with core constituents is critical. He emphasized that the bank is "constantly" in talks with its regulators, making sure that they are comfortable with both the buyer's and seller's respective compliance status.

Moreover, Jones added, an active buyer's proven ability to close deals "is really important" to would-be sellers. Sellers simply cannot afford to delve into a months-long deal process only to see a sale fall through, leaving it with strategic uncertainty and a staff dubious about the company's future.

Jones also said that, as Old National progresses with an acquisition, a target's credit quality is "critically important." Absent pristine loan books, it is paramount that a buyer is aware of any issues and can make sure that both it and its regulators are confident that challenges are manageable and that there is a clear plan to address them upfront.

Jones said that, on the lending and business-line fronts, Old National approaches deals with a keen eye on keeping a target's top talent on board. Such people not only play key management roles or are known drivers of revenue, but they often provide invaluable knowledge of their markets or business lines that Old National will need to tap. Jones has trumpeted the positive role that legacy staffers at Anchor BanCorp Wisconsin Inc., the last bank it bought out in 2016, have played in retaining key business relationships after the deal closed.

Makris echoed the importance of keeping talent, saying that as Simmons works through a deal it not only gets to know management at the target but also talented customer-facing staffers. "We do get face-to-face with most of the key people," he said.

As a deal comes together and then proceeds toward closing, the bankers said, it also is important to keep investors and analysts up to speed, clearly explaining the merits of the deal. Makris said this includes strategic and financial virtues of any arrangement. Investors, he said, have made it clear they want to see transactions that are accretive in the first full year, that generate substantial cost savings, and that come with tangible book value earnback periods of around three years or less.

Makris pointed to Simmons' latest acquisition plan as a case in point of what it wants to accomplish via M&A. The $462 million deal to buy Fort Worth, Texas-based First Texas BHC Inc. would give it about $2 billion in assets and help it beef up in the economically robust Dallas-Fort Worth metro area. The deal should prove accretive in the first full year following closing, bolstered by estimated cost savings of 32%.

Both Jones and Makris said they expect to continue to see more acquisition opportunities as 2017 unfolds. While there are high expectations for deregulation and lower taxes under President Donald Trump — likely profit-boosting developments that could motivate some community banks to reconsider selling — the bankers said such changes will take months, if not years, to realize. In the meantime, many small banks continue to grapple with heavy regulatory burdens, only modest profit growth, and succession-planning challenges.

"Those things haven't changed," Makris said. "They may, but they haven't yet."