The last time Chemical Financial (CHFC) in Midland, Mich., bought a bank, it was about the only company willing to do so in Michigan. A lot can change in four years.

The $6.2 billion-asset company announced Tuesday that it would acquire Northwestern Bancorp in Traverse City, Mich., for $120 million in cash, making it the sixth deal announced in Michigan since August. The price equates to 179% of Northwestern's tangible book value.

Chemical's executives predicted last June, when it filed a $100 million shelf registration, that deal activity was coming. By September, the registration evolved into a $58 million common equity raise. With capital in hand, industry observers have been waiting patiently to see when Michigan's second-biggest bank would strike..

"They've had good organic loan growth, but it seemed like they were stocking the war chest for potential M&A," says Daniel Cardenas, an analyst at Raymond James. "People wanted to know who it would be and what the timing would be... and I think they were out there looking for the right transaction."

Northwestern is a "premier franchise in northwestern Michigan," David Ramaker, Chemical's chairman and chief executive, said during a conference call to discuss the deal. Daniel Terpsma, Northwestern's president and CEO, did not return calls for comment.

Adding the $845 million-asset Northwestern plugs a major hole in Chemical's coverage of the non-urban markets of Michigan. John Donnelly, managing director of Donnelly Penman & Partners who advised Chemical alongside Keefe, Bruyette & Woods, says Chemical's executives fostered a relationship with Northwestern for years.

"This is a very strategic deal for Chemical. If we were playing Monopoly, this is Park Avenue," Donnelly says. "The northwest quadrant of the state was the missing piece for them and they have big plans for the area."

Others who were not involved in the deal agreed.

"This fits Chemical to a 'T,'" says Eliot Stark, an independent bank advisor in Michigan. "They've had a strategy of staying in smaller communities and this continues that."

Northwestern's loan portfolio has been shrinking in recent years as management dealt with credit issues, but Chemical is projecting that it can eke out double-digit loan growth in the area, which is heavily influenced by tourism and agriculture.

When quizzed as to how it expects to reach that goal, Ramaker hit on three themes. Chemical is a more aggressive consumer lender compared to Northwestern. Chemical has more products offerings in mortgages. Finally, Northwestern's commercial portfolio is dominated by real estate.

"We have a wider breadth of products," Ramaker said. "There are certain types of commercial loans that Northwestern has not offered that fit well with what we have."

Chemical is projecting an immediate 16% boost to earnings with the addition of Northwestern and accounting for projected cost savings. That spike could swell to as much as 20% over time should Chemical realize its projections for loan growth, Lori Gwizdala, the company's chief financial officer, said during Tuesday's conference call.

Chemical would like to announce one more acquisition this year, Ramaker said. If he accomplishes that goal, it would be one of the more-active years in M&A for Chemical. In 2012, it bought 21 branches from Independent Bank (IBCP) in Ionia, Mich. In 2010, it acquired the $840 million-asset O.A.K. Financial in Byron, Mich.

Though the handful of deals announced in recent months is a positive sign for Michigan, Donnelly says the Old National Bancorp's (ONB) January agreement to buy United Bancorp (UBMI) piqued the interest of potential sellers. Old National is paying 208% of United's tangible book value.

"That stimulated valuations and brought a lot of awareness to board rooms across the state. It got some things moving," Donnelly says, adding that the Chemical-Northwestern deal continues that trend. "Now you have to strong franchises being sold to two strong buyers."

In an interview, Ramaker agreed that a sea change is occurring among boards following the recent slew of deals, including the United one. Ramaker says the company did bid on United and is now looking for other in-market deals.

"Boards were on the fence before, but given the transactions that have occurred, they've gone over the fence and are more willing to have conversations," Ramaker says. "The opportunities are more plentiful."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.