This downgrade could be viewed as the validation of a controversial deal.

FirstMerit (FMER) in Akron, Ohio, was downgraded to a "hold" from a "buy" in recent days by R. Scott Siefers, an analyst with Sandler O'Neill. He changed his rating because FirstMerit's stock is getting more expensive. It has risen 50% since a large sell-off last year after its deal to buy Citizens Republic Bancorp in Flint, Mich., was announced.

For other acquisitive bankers, particularly those on the cusp of big deals, the market's eventual warm-up to the FirstMerit-Citizens Republic deal is positive. Every deal is measured on its own merits, but if buyers are fearful of a negative market reaction, FirstMerit's performance is proof that sometimes skeptical investors can be won over ... eventually.

"Given what their stock is doing, I think it should add confidence that deals that strategically and financially make sense will be well received," says Terry McEvoy, an analyst at Oppenheimer. "The market might put some pressure on it, but at least in this case, it has recovered and then some."

The outlook last fall was much grimmer, putting FirstMerit Chief Executive Paul Greig on the defensive from day one.

"The financial metrics for this deal are compelling," Greig said in a conference call on Sept. 13, the day the deal was announced — and its stock fell 11%. "This transaction is a next step in our evolution as a premier Midwest banking institution."

When Siefers advised investors to buy the stock in November, it was in a tailspin.

"The stock was out of favor when we upgraded it," Siefers said in an interview. "We thought it was being overly punished following the transaction announcement. Since then, investors have become more comfortable with the deal and are more focused on the benefits, and the stock has rebounded."

The $912 million stock deal was among the largest announced in 2012. It increased FirstMerit's assets by more than 40% and took it into Michigan and Wisconsin. Citizens Republic was a bank on the mend, but still had some lingering credit risk. The deal was viewed as a big gamble.

"This deal got them into new markets, but it wasn't a cost savings transaction, and they were buying a bank that just a few years ago was considered depressed and at risk," McEvoy says.

FirstMerit's stock continued to fall through November, when the stock was around $13, down from $17 on the eve of deal's announcement.

But investor attitudes slowly changed. First Merit reported a strong first quarter, and the deal closed in April. The overall stock market has been strong this year, too, except for recent volatility.

FirstMerit's stock closed Friday at $20.03.

The deal will be ultimately judged on how well FirstMerit integrates Citizens Republic  and its ability to hit its targets. Investors are watching for the purchase accounting treatment of Citizens' substandard assets, Siefers said.

Smaller, but equally transformative deals announced this year, such as SCBT Financial's deal for First Financial and Home BancShares' deal for Liberty Bancshares, were immediately endorsed by the market, with the buyers' stock trading up after the deal. On the other hand, Comerica's (CMA) stock is just now reaching where it was before it announced in early 2011 deal for Sterling Bancshares of Houston.

Stephen Geyen, an analyst at D.A. Davidson, says that the market was skeptical of FirstMerit's ability to earn back the 7.5% tangible book value dilution in two and a half years. Geyen applauded the company's commitment to selling stakeholders on the transaction.

"The metrics have not changed, they've stayed fairly consistent," Geyen said. "But management was more forthcoming in conference calls and investor conferences about where they see the potential."

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