Bank M&A Dealmakers Gotta Get Some Imagination

Get over it.

That's what bankers, investment bankers, private equity investors, ex-regulators and others will be saying between the lines at an M&A symposium sponsored by American Banker on Monday and Tuesday in New York.

The get-together is officially called "Laying the Groundwork," but you can't prepare for the future until you get over the past. Namely, forget the moaning that the highly anticipated merger wave has proven to be a bust. Some of the participants will urge more enlightened, constructive thinking.

"You gotta get a little creative," Rusty Cloutier, the chief executive of MidSouth Bancorp (MSL) in Lafayette, La., said in an interview. He was previewing his planned remarks about the attitudes of buyers and sellers.

Many in the industry, including Cloutier last year, have blamed sellers' unrealistically high expectations about the price their bank deserves. That gap is closing, Cloutier says, but now the buyers are getting more selective, too, figuring there are plenty of targets around and they shouldn't rush.

Ultimately, it takes two to tango.

"What you gotta do, you gotta figure out what the buyer wants and try to match it up and try to make sure it works for you," Cloutier says. "The buyer has got to be creative, and the seller has got to be creative. You gotta put your heads together and say what can we get done."

He cited a deal MidSouth did in Dallas last year; it bought five branches from Jefferson Bank in a deal structured through a bankruptcy court.

More conversations are going on behind the scenes than in months back, says Allen G. Laufenberg, the managing director of investment banking at Stifel Nicolaus Weiser.

Recent carveouts and other creatively structured deals are a sign that buyers and sellers' valuations are more closely aligned than some think. "Those carveouts work when there is a bid/ask spread but it's narrow enough to create a structure," he says. "When you are talking apples and oranges, it just doesn't work."

Sellers' expectations still remain high in stronger markets like Texas. And, in weaker regional economies like in the Midwest, negotiators are closer together on tangible book value but farther apart on how much the sellers' assets should be marked down under accounting requirements, Laufenberg says.

For those reasons, so-called niche deals have gained momentum, in which banks are pursuing specialty finance companies, online lenders, insurance firms and other nontraditional acquisitions.

Why? "The sellers are more receptive to the concept because of the core funding — they understand the benefit of being part of a bank," says Laufenberg, who will participate in a panel discussion Monday on niche deals with Barry Winslow, a vice chairman at TCF Financial (TCB) in Wayzata, Minn., which has expanded into equipment, boat, recreational vehicle and used-car loans.

"Buyers are looking at this as a nice way to enhance or complement their existing business and have some potential higher asset-yielding loans than what they can put on in some of their core markets," Laufenberg says. Buyers often see such deals as a good use of excess liquidity.

The two-day conference will feature prominent industry names such as Wilbur Ross, the chairman and chief executive of WL Ross & Co.; Tom Michaud, the chief executive of Keefe, Bruyette & Woods; and former Comptroller of the Currency John Dugan, now a partner at the law firm Covington & Burling.

It will be held at the Metropolitan Club of New York, and onsite registration will be available.