Moving to strengthen its position in the hot Virginia market, BB&T Corp., of Winston-Salem, N.C., said Thursday it would buy MainStreet Financial Corp., of Martinsville, for $554 million in stock.
The deal, which is expected to close in the first quarter, would solidify $32.1 billion-asset BB&T's rank as the No. 6 bank in Virginia deposits. MainStreet, a $2 billion-asset company, has 46 branches in that state and three in Maryland.
BB&T would pay 3.25 times MainStreet's book value and 24 times its 1998 estimated earnings-a steep price, according to analysts. Some pointed out that Virginia is an attractive banking market with a robust economy and booming population.
"You can tie a very close relationship between population growth and earnings growth," said R. Harold Schroeder, an analyst with Keefe, Bruyette & Woods Inc., New York.
Several large regional banks have entered Virginia through acquisitions over the past year. Just last month, SunTrust Banks of Atlanta said it would buy Crestar Financial Corp., a $26 billion banking company in Richmond.
Last year, Wachovia Corp. of Winston-Salem, N.C., bought two Virginia companies: Central Fidelity, a $10.6 billion banking company in Richmond; and Jefferson Bankshares, a $2.1 billion company in Charlottesville. And First Union Corp. of Charlotte, N.C., bought Signet Banking Corp. of Richmond.
Though these deals are significantly larger than BB&T's latest step, BB&T chairman and chief executive officer John A. Allison said he would continue to look for companies in the $250 million to $2 billion asset- range.
"There certainly have been a number of mergers in the Virginia marketplace," Mr. Allison said. "However, these mergers have not had a significant impact on our acquisition strategies."
Mr. Allison did not rule out buying a larger company. The largest independent bank in Virginia is First Virginia Banks Inc., a $9 billion asset company in Falls Church.
BB&T said MainStreet would add to its earnings in 1999. The company expects to pare $15.4 million of MainStreet's operating costs and to take merger-related charges totaling $12.5 million near the time of the deal's close.
With the addition of MainStreet and a pending deal to buy Maryland Federal Bancorp., BB&T would have $7.4 billion of assets in Virginia and metropolitan Washington, D.C. It would have $5.5 billion assets in Virginia alone.
"Their longer-term plan is to become a dominant player in Virginia," said Lana Chan, an analyst with CIBC Oppenheimer.
Still, the deal "looks a bit pricey," Ms. Chan said.
At MainStreet, president and CEO Michael Brenan cited tough competition and rising costs, especially for technology, as reasons for selling. Mr. Brenan added that he did not believe bank premiums would go any higher.
"Pricing has either peaked or is getting close to peaking," he said.
Having come from Banc One Corp. four years ago to turn MainStreet around and build it through acquisitions, Mr. Brenan said now is a good time to sell, even though the market for bank stocks has been down.
"If the market tanks, I'd rather have their currency than a small-cap currency," Mr. Brenan said.
Mr. Brenan will stay on with BB&T, moving to Winston-Salem to scout for nonbank acquisitions. BB&T has been an active acquirer of small insurance, brokerage, and related businesses.
This month BB&T said it would buy Richmond, Va.-based securities firm Scott & Stringfellow Inc. for $131 million in stock.