Bank buyers these days really want their deals to be viewed as partnerships, which require give-and-take.
They are giving stock to the sellers and making important concessions, even regarding what to name the new bank. In a handful of the largest deals this year, the seller's brand is the one that survived. All of those deals were sold to investors as an alliance and sometimes described as a merger of equals.
Such deals make so much sense in the current environment: two banks in the same or complementary markets think they can weather the current economic and regulatory environment better and provide stronger returns for their shareholders by joining forces and eliminating redundant costs. Investors have embraced the concept, as stock increases at the buyers have shown.
However, negotiations entail a complex dance of legacies, pride, board compositions and other social issues, before even arriving at a price. Such deals promise financial and strategic benefits, but they are the hardest to pull off, M&A advisors say.
It comes down to cooperation, says William H. W. Crawford 4th, chief executive of Rockville Financial (RCKB) in Connecticut. Last month, Rockville announced it would acquire United Financial Bancorp (UBNK) in West Springfield, Mass., with United Financial and its United Bank brands surviving.
"We really like the Rockville name, it has meant a lot to our community, but at the end of the day the right thing to do was to get this deal done," Crawford says. "Both sides had to give up a lot of different things and name was one of the things we had to give up."
In the same interview, Richard Collins, the chairman and CEO of United who will retire when the deal is completed, points out that the name United is not restricted to a single geography like Rockville is. Crawford agrees.
"'United' is a name that travels well," Collins says. "Maybe that's why there are so many 'Uniteds' around."
With an ownership split of 49% Rockville/51% United and a 20-person board with equal representation from both companies, analysts like Mark Fitzgibbon of Sandler O'Neill have described it as the "most equal of the MOEs we've seen this year."
The name-related compromise makes sense, advisors say. Go with the best one is their advice.
"In most cases what you are seeing are the companies going with what they view as the better name, [the one that] is going to give them a broader application in the market," says Brian Sterling, principal and co-head of investment banking at Sandler O'Neill, which wrote a fairness opinion on the Rockville-United deal.
In some cases, there is a marriage of practical reasons and pride. Provident New York Bancorp's merger with Sterling Bancorp (STL) was a good example of the stars aligning. Provident New York in Montebello had a naming conflict with The Provident Bank in Jersey City, N.J. and observers say Louis J. Cappelli, Sterling's chairman, likely wouldn't have been keen on seeing the name of the company he has worked for since 1949 go away.
"It was definitely important to Lou and the board for 'Sterling' to remain in existence, even if it wasn't the legal surviving entity" Fitzgibbon says.
Damon Delmonte, an analyst at Keefe, Bruyette & Woods, says the naming compromise is a good signal that bankers are seeing the bigger point in negotiating: the companies are better off together and that they should do what they can to make it happen.
"It is sign that they are truly trying to create as friendly a deal as possible," Delmonte says.
It is not all singing Kumbaya, though. There is a competitive advantage to agreeing to take on the seller's name, says Kevin Hanigan, chief executive of ViewPoint Financial in Plano, Texas, which agreed to acquire the $1.7 billion-asset LegacyTexas Group, also in Plano, last week. LegacyTexas has long been coveted but had been fiercely independent. By agreeing to rename itself LegacyTexas Group, the $3.4 billion-asset ViewPoint somewhat protects its deal from an unsolicited offer.
"In deals, we all have concerns about what if someone shows up and tops your bid," Hanigan says. A larger buyer wouldn't be willing to change its name. "It makes it more difficult."
Still, the most important reason for the switch is that LegacyTexas is a better name, Hanigan says. He knew that from a marketing study even before approaching LegacyTexas.
Hanigan was the one who suggested the name change, and it is a good thing he did.
"Kevin and his team are really appealing, but ViewPoint as a brand wasn't as favorable to us," says Aaron Shelby, an executive vice president of LegacyTexas. The Shelby family owns a 75% stake in LegacyTexas. "I don't know that it would have killed the deal, but it was a factor to us. I don't think we would have been quite as excited without it."