There's an adage in mergers and acquisitions that often the best deals are the ones that don't happen.

Prospective buyers must be able to clearly articulate the rationale behind a deal, especially in an age of heightened regulatory scrutiny, experts said during a bank M&A conference hosted by S&P Global Market Intelligence on Thursday. Establish strict criteria and stick to them, even if doing so kills the talks, they said.

"An important characteristic that successful buyers share is discipline," Mitchell Eitel, a partner at Sullivan & Cromwell, said during a panel discussion. "And it is not only discipline in pricing. It's also discipline of approach, discipline of identifying targets, discipline in dealing with investors."

Deal activity has slowed this year, with just 117 whole-bank transactions being announced through June 30. The yearend total is likely to fall short of the 278 deals announced last year and 282 in 2014. A variety of factors are said to be hindrances – everything from compliance issues to the long regulatory review process.

But thorough due diligence is essential, and it must go beyond simply reviewing credit portfolios and be sure to examine anti-money-laundering compliance, fair lending practices and Home Mortgage Disclosure Act reports, said Rick Childs, a partner at Crowe Horwath.

"If you have a weakness, a deal amplifies it about 10 times from what you see during the day to day," Childs said during the panel. "It becomes very apparent."

Having a comprehensive strategy for picking targets and completing deals is crucial, Childs said. He once worked with a bank that had only one criterion when looking at potential deals — that the target was for sale, he said. This led to the buyer developing a nonsensical collection of markets that featured long distances between branches, he said.

Stonegate Bank in Pompano Beach, Fla., did not set out to be an active acquirer and instead took advantage of opportunities when the last recession hit and failed institutions suddenly became available, President and Chief Executive David Seleski said during the conference. The $2.4 billion-asset bank has made nine acquisitions since 2009, including buying four failed institutions, and has a 10th deal pending.

The bank looks for deals that give it bigger share in its existing markets while also supplementing that with internal growth, said Seleski, who noted that "discipline is extremely important." During due diligence, it considers whether the seller's balance sheet is likely to cause problems when interest rates begin to rise.

"We also don't look at M&A as the be-all and end-all of everything we do," he added. "For us organic growth … is just as important."

Each of the four deals that TowneBank in Suffolk, Va., has completed in its 17-year history was "very opportunistic" and had a different motivation behind it, said Chief Strategy Officer William Littreal. One was effectively a capital raise for the $7.9 billion-asset bank while another provided footholds in new markets.

"For us, it is really about the reasons to do the transactions," Littreal said.

Making sure investors understand the rationale behind the deal is extremely important for smoothing the process, Joshua Siegel, CEO and managing partner at StoneCastle Partners, said during an earlier panel in the day about how investors view the industry. Everything from looking to gain market share to entering a new geographic area to helping lower the cost of funds could be good reasons for a transaction, Siegel said.

"There just has to be a good reason to justify it," Siegel said. "If there is a reason then the economics become slightly more malleable."

Ultimately, bankers should be willing to walk away from a deal, panelists said. TowneBank has abandoned deals because of credit issues it uncovered during diligence or because the pricing became too rich, Littreal said.

Stonegate has walked away from deals "strictly for subjective reasons," Seleski said. This includes a "gut check" where "everyone around the room says, 'Something doesn't feel right. I couldn't sleep last night. This doesn't feel like the right deal for us,' " Seleski said.

"Sometimes it's just little things that add up," he said.

First Bancorp in Southern Pines, N.C., has spent significant time pursuing several transactions to only abandon them after negotiations soured the relationship with the potential partner, CEO Richard Moore said.

"We've spent significant time in several situations where it was obvious what was going on," Moore said. "The investment banker was doing their job playing the finalists against each other. Sometimes it pays to stick to your pricing discipline and sometimes it pays to say, 'If this is the way this will go, we really don't want to do business with these people anyway.'"

Sometimes creativity is the answer to meeting growth objectives.

The $3.5 billion-asset First Bancorp completed a unique deal with First Community Bancshares in Bluefield, Va., this year in which it swapped seven of its branches in Virginia for six of First Community's locations in North Carolina.

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