BB&T's King Gets Back M&A Chops with BankAtlantic Score

Most people go to Fort Lauderdale for spring break. Kelly King went there last fall to get his mojo back as a rainmaker.

The chairman and chief executive of BB&T (BBT) in Winston-Salem, N.C., officially did just that this week. He closed his drawn-out takeover of the bulk of BankAtlantic Bancorp, a complex transaction that analysts say should cure any lingering doubts about his M&A prowess.

PNC Financial Services Group (PNC) outflanked King for RBC Bank (USA) in Raleigh, N.C., a prize many on Wall Street felt King could have justified paying a premium for because BB&T and RBC overlapped substantially. Instead, PNC walked away with RBC at a small discount to its tangible book.

If King looked passive at the time, in hindsight he appears disciplined, analysts say.

He went to exceptional lengths to buy BankAtlantic's 78-branch franchise for cheap and in a way that basically quarantines its exposure to the more than $400 million of BankAtlantic's toxic real estate assets. When bondholders blocked the deal in court, he amended it. When regulators dragged their feet to approve the deal, he waited.

But King did not overpay. That puts his RBC defeat into context.

BB&T executives look at a lot of targets but "they have proven, based on what they have acquired and what they haven't acquired … that they've been disciplined," says Todd Hagerman, an analyst with Sterne, Agee & Leach.

BB&T officials did not comment before deadline.

Though Hagerman was "disappointed" that BB&T did not win RBC because it would have "been a terrific fit," he is not lamenting what could have been, he says.

Instead it is getting bigger in Florida, a recovering market that is drawing renewed interest.

BB&T also closed a $570 million purchase in April of Crump Group's insurance operations that delivered stronger than expected fee income in the second quarter, Hagerman says.

That under-the-radar deal, part of BBT's broader expansion in insurance, was a reward for playing it safe.

"A lot of investors really underestimated the impact that Crump would have on the company," Hagerman says. "The Crump deal I think is a home run — you look at the margins on that and what it does to their revenue stream," he says.

BankAtlantic, meanwhile, is a "very unique" and potentially "very accretive deal," given its novel terms, he says.

The $316 million purchase gives BB&T about $2 billion of loans and $3 billion of deposits in five South Florida counties. The $400 million of toxic loans are housed in a separate entity that will be used to retire liabilities outstanding to certain bondholders of BankAtlantic.

That protection gives BB&T a leg up in making the most out of BankAtlantic's assets, which complement the north Florida operations it acquired in its 2009 takeover of the failed Colonial Bank. That deal will be the cornerstone of King's legacy at BB&T, analysts say.

"The Colonial deal was obviously a once-in-a-lifetime opportunity and a great deal for BB&T," says Kevin Fitzsimmons, an analyst with Sandler O'Neill & Partners.

It is unlikely that BB&T will go after any more big deals in the near term, given the additional stress tests planned by the Federal Reserve in 2013 and capital standards for large banks that have yet to be finalized, Fitzsimmons says. Were it to do anything, he says, it would most likely focus on Texas and Tennessee, two stable markets where it lacks density.

"It's pretty hard to make the argument that there's a high risk of BB&T being reckless and paying too much just based on the track record of what we've seen over the last few years," he says.