Chicago-area bank's IPO sets stage for acquisitions

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Byline Bancorp in Chicago could be laying the groundwork for bank acquisitions.

The $2.6 billion-asset company recently filed a prospectus to raise nearly $80 million through an initial public offering. Certain shareholders plan to sell another $40 million in stock.

Byline, if successful, would become the first Chicago bank to go public in 15 years.

The offering would also send a message to other area institutions that Byline intends to be a buyer — rather than a seller — in a crowded market that could see a fair share of consolidation in the future.

“I suspect they went the IPO route versus a sale so that they could reap the benefits of being a public company [and] get some liquidity to their shares,” said Michael Iannaccone, president of MDI Investments in Chicago. Byline, once it becomes publicly traded, would be able to offer potential sellers a more liquid stock.

Byline representatives did not respond to a request for comment.

Byline is one of several banks that have lined up IPOs in the past year, a period where the KBW Nasdaq Bank index has increased by 46%. Five institutions have completed IPOs this year, including three mutual conversations, according to data from Keefe, Bruyette & Woods.

Others, including Esquire Financial in Jericho, NY., and Guaranty Bancshares in Mount Pleasant, Texas, are planning to go public in coming months.

IPOs provide selling institutions with capital that can be used for organic growth or acquisitions. They can also provide investors, including private-equity firms, directors and executives, an opportunity to sell shares.

At Byline, Mexican investment firm Fambeck Servicios Financieros del Exterior plans to sell its entire 7% stake as part of the IPO. Trinity Universal Insurance will reduce its stake below 1%.

Byline’s biggest shareholder, MBG Investors, and Roberto Herencia, a former Banco Popular North America CEO who helped recapitalize the company in 2013, are not selling shares as part of the offering.

The IPO could also help Byline raise its profile in the Chicago area, where more than 200 banks operate about 2,900 branches and fight for $391 billion in deposits, according to data from the Federal Deposit Insurance Corp.

“I think it probably gives them more visibility than what they may have had as a [privately held] bank holding company,” said Jon Bruss, CEO of Fortress Partners in Heartland, Wis.

Despite having an abundance of banks, only 6% of the banks based in the Chicago area are traded on the Nasdaq or the New York Stock Exchange, based on data from S&P Global Market Intelligence. Less than fifth of the banks based in the area have more than $1 billion in assets.

A number of Chicago’s publicly traded banks have been sold. Taylor Capital Group was acquired in 2013, while the sale of PrivateBancorp is expected to close soon. Wintrust Financial in Rosement, Ill., has bought more than a dozen Chicago-area banks since the financial crisis.

Byline has some experience with acquisitions since its recapitalization. It bought Ridgestone Financial Services in Brookfield, Wis., last year for $105 million in cash and stock. Ridgestone had $433 million in assets.

Byline could have more opportunities to buy similar-sized banks.

There are few acquirers around Chicago that are in the market to buy banks with $160 million to $750 million in assets, meaning Byline could have scant competition for banks in that range, Iannaccone said.

Wintrust is one of the few exceptions. The company, which has focused on suburban banks with assets between $125 million and $487 million, hasn’t completed a bank acquisition since November’s purchase of First Community Financial.

Other potential acquirers could have tended to zero in on bigger targets.

“I’m very intrigued to see how it all turns out” for Byline, Iannacone said.

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