Florida bank sellers, John W. Allison of Home BancShares (HOMB) has a message for you: look for him in 2014.
He still covets the Florida market even though his Conway, Ark., company recently agreed to buy Liberty Bancshares in Jonesboro, Ark. -- its first deal outside Florida in years and one of the biggest bank M&A transactions in the first half of 2013.
His multistate effort is a classic balancing act that pits the quest for growth against the dangers of excessive risk-taking.
"Florida is a market with tremendous growth opportunities that Arkansas doesn't have," says Allison, the chairman of Home. "But who got hit harder? It is a two-edged sword."
The $280 million deal for Liberty would transform Home, taking the $4.2 billion-asset company to nearly $7.1 billion in assets and making it No. 3 in deposits in Arkansas.
However, it would set the company back in terms of geographic diversification. Home's assets are currently split nearly evenly between Florida and Arkansas. The Liberty deal would alter the asset mix to about 75% Arkansas and 25% Florida.
In the long term, Allison says Home might be a seller as it nears $10 billion-asset threshold where the Durbin amendment and additional regulation kick in. Having a surf-and-turf operation in Arkansas and Florida could be more attractive than an Arkansas entree with a Florida side, but Allison says he isn't worried about that right now.
He is expecting to take at least six months to integrate Liberty after the deal's anticipated close in the fourth quarter. Once that is over, he expects to do more deals in the Sunshine State and get the company's asset mix back to 50/50.
He was already on the hunt when the Liberty opportunity came up.
"I left on a Wednesday and by 10 p.m. on Thursday, I'd visited with the management teams of seven banks," Allison says. "We got a hit back on seven out of seven. I would love to close some of them right now, but Liberty came up and I gave it preference."
Allison had long coveted Liberty and had told analysts and investors that he had a "game-changer" in mind. Given the 19% accretion to earnings in 2014 he is forecasting, Brian Zabora, an analyst at Keefe Bruyette & Woods, says Home made the right choice for now.
"My guess is that they weighed the high-growth potential in Florida against the better near-term accretion opportunity in Arkansas," Zabora says. "The accretion is so significant it is hard for me to find fault in this deal."
Home is expecting 30% of cost savings that should come through eliminating of back-office redundancies and other "low-hanging fruit," Allison says. The companies have virtually no overlap in their branch networks.
Through cost savings, Home expects its can bump Liberty's 0.87% return on assets to 1.50% by the end of next year. Home's ROA in Arkansas in 2.2%.
"The deal is also clearly financially attractive and strategically compelling," Joseph Fenech, an analyst at Sandler O'Neill, says in a research note. Fenech increased his 2014 earnings estimates by 23%, or 30 cents, to $1.62, but added, "We suspect our estimates will need to move higher."
Several analysts expect Home to return to dealmaking in Florida.
Allison says he will be on the prowl for anything in south Alabama, where Home has seven branches, and the Florida Panhandle. He is also looking in other parts Florida: the Orlando-Tampa corridor, Naples, the east coast and the Keys.
Since 2010 Home has bid on 32 failed banks, winning seven of those bids. It has also bought two deeply distressed banks.
Yet Allison entered Florida under sunnier conditions. In 2005 Home acquired the $222 million-asset Marine Bancorp in Marathon, in the Florida Keys. Of course, he was there for the storm, too.
"We lenders in Florida got caught up and lost sight of lending," Allison says. "When the dust settled, the bad news was that we lost $30 million, but the good news was that we lost $30 million. Because of that, we knew the price of real estate in Florida and knew how to bid."