Turmoil in energy markets significantly influenced the sale of Tradition Bancshares in Houston.

Two banks that were interested in buying the $522 million-asset company backed out of talks when oil prices began to plummet last fall, providing an opening for Prosperity Bancshares in Houston to swoop in and forge a deal, according to a recent regulatory filing.

Tradition hired Sandler O’Neill in September 2014 – before the swoon in oil prices began – to look for buyers. The investment bank reached out to 12 prospects; two unnamed banks provided written indications of interest with values ranging from $77.5 million to $80 million. Though it didn’t provide a formal offer, Prosperity indicated it was willing to pay an amount that turned out to be lower than those of the other banks.

By January, the unnamed banks “significantly” lowered their valuations, citing issues in energy market; Prosperity remained mum on the issue. Based on those responses, Tradition’s board decided against selling at that time.

One of the unnamed banks returned to the table in May, offering $71 million in cash or $72 million in a deal evenly split between cash and stock. Around that time, David Zalman, Prosperity’s chairman and chief executive, contacted Sandler; Prosperity decided to offer $78 million, with half the consideration involving cash.

All other banks balked at paying a higher price. Tradition and Prosperity began to engage in conversations by mid-June.

The companies announced a merger agreement on Aug. 6, with the value settling down to $77 million in cash and stock.

"We continue to look for opportunities to enhance our presence in the Houston area and Tradition Bank's locations in Bellaire, Katy and the Woodlands are an excellent fit for us," Zalman said in the press release disclosing the deal.

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.