Ken Karels wasted no time establishing the newly independent Great Western Bancorp in Sioux Falls, S.D., as an ambitious acquirer in the Midwest.
Just four months after being fully spun off by its Australian parent, the $9.8 billion-asset company agreed to buy the $1.2 billion-asset HF Financial, which is also based in Sioux Falls. The deal will catapult Great Western over a key regulatory threshold where it faces greater regulatory scrutiny.
The $140 million acquisition also allowed Great Western, which had taken a three-year break from M&A, to send a clear message to investors that it was eager to pursue more deals.
"We're back on the hunt," Karels, Great Western's chief executive, confirmed in a recent interview.
Karels, who is responsible for navigating the approval and integration process for a meaningful deal while scouting out more acquisitions, is one of American Banker's Community Bankers to Watch in 2016. He was originally singled out for our list in November, based on a belief that a big deal was around the corner.
That prediction came true much sooner than expected.
History, meanwhile, suggests that the integration will go smoothly. Great Western was an active acquirer when it was owned by National Australia Bank, scooping up smaller banks in Iowa, Nebraska and Colorado.
Great Western's M&A machine went idle as the Australian parent began exploring a spin off. The company went public in October 2014 – its shares are up nearly 70% from its debut – and National Australia fully divested it stake in late July, ending seven years of ownership.
M&A is an "ongoing" strategy at the company, Karels said, though he declined to discuss the timing of any future acquisitions. Great Western is looking at targets in existing and nearby markets with $2 billion to $3 billion in assets, he added.
The company is also open to buying branches, which "would be something we could easily handle," Karels said.
Great Western has the capacity to juggle multiple deals, though it is likely that the company would wait until the second half of next year to pull the trigger, industry observers said.
The company wants to show investors that it has a "cautious and prudent" approach to M&A, said Damon Delmonte, an analyst at Keefe, Bruyette & Woods. "I don't think they're going to go on the prowl right away," Delmonte said, adding that the company will still stay in constant contact with potential targets.
A recent drop in commodity prices – corn prices fell for the third straight year in 2015 – may also push Great Western into the spotlight next year.
"I don't think anybody can get away from the pressures across the [ag] sector," Delmonte said, though he noted that higher loan yields have helped to offset falling prices.
Diversity within Great Western's farm book should also work in its favor, industry observers said.
Great Western splits its portfolio between grains, such as corn and wheat, and protein, including hogs and cattle. Grain accounts for 36% of the company's farm loans, while livestock makes up just under half, Karels said.
That's important because lower grain prices can be a boon to livestock farmers by reducing their feed costs.
Great Western has "been anticipating and managing risk around lower commodity prices for some time," said Tim O'Brien, an analyst at Sandler O'Neill.
Great Western may also face challenges recruiting talent next year, Karels said, because unemployment has been low in its primary markets. To attract top talent, the company has adopted a flexible policy for telecommuting.
"The bank needs to be open to different work schedules," Karels said.
A newcomer in terms of publicly traded companies, Great Western has attracted investor attention in recent months — and will continue to do so as it expands across the Midwest, analysts said.
"This is the baseline, foundation year on which [Karels'] tenure will be judged," O'Brien said.
Great Western was a private company before National Australia bought it 2007, so investors are still getting acquainted with Karels and his plans to grow the bank.
"To the market, this is a new story," Delmonte said.