Allegiance Bancshares executives long saw Independence Bank as a potential acquisition target, but what finally prompted the two Houston lenders to pair up?
"It is very simple: now is when they said yes," says George Martinez, the chief executive of the $825 million-asset Allegiance, which agreed last week to buy its smaller rival. "We've been talking to them for a while, and this year it was the right time for them to consider it."
The story is an increasingly common one in bank M&A: two executive teams know each other well, envision mutual benefits in joining forces and feel they would make good partners but are waiting for the right time. For many banks, with their credit woes behind them but lukewarm economic prospects ahead, the right time is right now.
Sellers in Texas might be especially motivated to partner with a growing bank like Allegiance. M&A chatter has heated up among the privately held banks hovering near $1 billion in assets since the April initial public offering of Independent Bank Group (IBTX).
The McKinney, Texas, company raised $87 million in its IPO. Shares in the $1.8 billion-asset Independent Bank Group are trading around $34 apiece now, well above the $26 offering price and at about 225% of tangible book value.
"The Independent IPO really brought a lot of focus in that size range, and the sales pitch is that you could be a part of the next Texas bank to go public," says Daniel Bass, a managing director of Performance Trust Capital Partners, one of the advisors to the $220 million-asset Independence Bank. "It really ignited the banks like Allegiance to try and get to $1.5 billion in assets," a rule of thumb for banks that want to get the market's attention.
Allegiance will look to go public when it hits assets of $1.2 billion, Martinez says.
With the addition of Independence and it expectations for organic growth, he thinks the company will hit that asset size next year.
Although Bass says some banks might be lured by getting a privately held buyer's stock with the expectation of the company going public later, Martinez says M&A is easier to accomplish as a public company.
"In my experience, a public stock is more attractive than a private stock that might go public," Martinez says. "It is a bird in the hand."
Besides making it easier to be a buyer, going public would also make it easier for Allegiance to stay independent.
"We want to provide liquidity for the shareholders," Martinez says. "It is the only way to do so because our intention is to keep this bank as a local bank."
Martinez co-founded the former Sterling Bancshares in Houston in 1974 and was its chairman until his retirement in 2004. He and other Sterling executives founded Allegiance in 2007; meanwhile Sterling agreed to sell to Comerica (CMA) for 2.3 times its tangible book value in January 2011.
"George has been pretty open about recreating a bank like Sterling, rebuilding a Houston franchise that is not just built to sell," Bass says.
Under his leadership, Sterling acquired about a dozen banks, Martinez says. It started in the 1980s with troubled banks and switched to healthy ones in 1993.
Allegiance is looking for lending platforms that would further its organic growth, Martinez says. Its Allegiance Bank Texas unit has increased loans 20% each year according to first-quarter data.
Without giving specifics, Martinez says there are other banks like Independence that will come around.
"If they keep saying no, we just keep asking," Martinez says. "That has been our method; we stay in touch with everyone in our market. We know consolidation is going to happen at some point."