The banking industry has a funny way of fixating on specific metrics. Sometimes it is the efficiency ratio, other times it is the net interest margin. The darling of bank M&A these days is how long a buyer needs to rebuild its tangible book value.
Dan Rollins, the chief executive of BancorpSouth (BXS) in Tupelo, Miss., is not one for following trends, though.
BancorpSouth announced Wednesday it would acquire the $1.3 billion-asset Central Community in the Austin, Texas, market just a few weeks after announcing a deal to buy Ouachita Bancshares in Louisiana.
The $13 billion-asset BancorpSouth skipped giving specific estimates related to the Central Community deal, such as how long it would take to earn back tangible book value and the impact on earnings. Analysts' phones started ringing as investors clamored for details.
"We spoke to several investors. Everyone was trying to figure it out," says Catherine Mealor, an analyst at Keefe, Bruyette & Woods. "They are not huge deals, so it is probably OK, but if you're going to come out with a deal that is greater than 20% of your assets more guidance would be important."
Those details did not come on Thursday when the company hosted a call to discuss its fourth-quarter results and its latest deal.
"We're going to let you model that," Rollins said in response to a question from Mealor on the earn-back period. "You guys have been able to model for us much different ways. We see that the earn-back period is very reasonable for us. As far as putting out any specific numbers on anything, we're not into that game."
Analysts' modeling yielded various, but similar, results. Stephen Moss, an analyst at Evercore Partners, said in a note on Wednesday he was expecting a five- to six-year earn-back and expected the stock to fall on Thursday.
But its shares were down less than 1% late in the trading session Friday. Mealor said in a post-call note that she is expecting four to five years. Kevin Fitzsimmons, an analyst at Sandler O'Neill, says he is expecting the deals for Central and Ouachita to collectively take roughly 6% out of the company's tangible book value. He expects it to take 5.4 years to earn it back.
The laserlike focus on those metrics is likely related to the delicate state of M&A as it begins to gain momentum. Perhaps the biggest vote of confidence to dealmaking in the last year has been the positive stock reaction some buyers have experienced in announcing deals.
In general, the most well-received deals have been deals that include: the ability to cut roughly a quarter of the sellers' expenses; earn-back of tangible-book-value dilution in less than five years; and double-digit earnings accretion.
"There is a threshold for tangible-book dilution, and investors think that below it is OK and above it is too much," Fitzsimmons said in an interview Thursday. "I'm not saying [BancorpSouth's] is too much, and it traded in line with [other banks] today, so there was no negative reaction."
Rollins said in an interview on Friday that he understands why analysts want to know how the executives are expecting deals to perform, but he wants to avoid boxing himself in.
"They are trying to make sure there is value here for our shareholders but they run everything off a model and that is not the way the business world works where we make decisions every day," Rollins says. "And if we put a target out that is what the focus becomes. If we miss it that's the headline. That doesn't add any value to us."
Rollins says he avoids guidance overall. Efficiency is a big sticking point at BancorpSouth right now, but Rollins says he doesn't give guidance on that, either. Occasionally he'll give a range when he is really sure about something.
Analysts seek that information to make sure their expectations jibe with the company, Mealor says.
"We want to make sure we are on the same page. We want to make sure we didn't miss anything," she says. "But at the end of the day, we are going to model it our own way anyway."
Concerning tangible book value dilution specifically, Rollins says it is only a point of focus at the deal announcement.
"They talk about it on day one and never look at it again," Rollins says.