Iberiabank's (IBKC) recent deal in Dallas might seem a bit undersized now, but history suggests that the acquisition will look more like a ten-gallon cowboy hat in a few years.
The Lafayette, La., company agreed last week to buy First Private Holdings, a $357 million-asset company that specializes in private banking and commercial lending.
At less than 3% of Iberiabank's $13.4 billion in assets at Dec. 31, the deal is an outlier in light of recent consolidation. With the industry focused on deep due diligence, the general thinking is that deals should have meaningful size since most of them require about the same amount of work. Another trend involves transformational deals, where buyers can double their size in pursuit of scale and efficiency.
For Daryl Byrd, Iberiabank's president and chief executive, the deal represents an opportunity to enter a new market. In a conference call last week, he referenced Iberiabank's forays into Baton Rouge, La., and Houston as proof of its ability to make small steps matter.
"We did go into Houston, totally de novo, [and we're] very proud of what we've accomplished there," Byrd said during the call with analysts. First Private "gives us an advantage. It actually gives us a head start over what we did in Houston. And, from a revenue and growth perspective, this is pretty exciting for us."
Iberiabank entered Houston in August 2009 by hiring of a team of bankers. Since then, it has expanded to six branches and, with $1.4 billion in organically generated loans, it is the company's fastest-growing market.
Additionally, Byrd referenced the company's 2004 acquisition of the $77 million-asset Alliance Bank of Baton Rouge. In the decade following the acquisition, assets in that region have increased nearly ten times.
"We are not worried about the size" of acquisitions, Byrd said in an interview Tuesday. "Sure, there are advantages to larger deals, but for the right reasons and the right growth dynamics, we are not worried about size. We are more interested in the right talent."
The acquisition is "a strong fit for them in a naturally attractive market," says Peyton Green, an analyst at Sterne Agee. "It has the potential to be another Houston-like market for them."
Other industry observers say this deal fits a bigger trend of Southern banks looking to buy beachheads in Texas because of the state's growth potential.
As Dan Rollins, BancorpSouth's (BXS) chief executive, pointed out earlier this year, cities in Texas are larger than any other market where the Tupelo, Miss., company currently conducts business. The $13 billion-asset BancorpSouth agreed last month to pay $211 million to buy Central Community in Temple, Texas.
Iberiabank's acquisition of First Private "might be a tiny deal, but these banks want to be in Texas," says Joe Fenech, an analyst at Sandler O'Neill. "If they can get a franchise in Texas at a reasonable price they are inclined to do it."
Given the size of the markets, increased market share and loan growth can make the deal meaningful over the long term.
"Iberia is getting a 0.16% market share in Dallas with this deal," says Kyle Oliver, an analyst at Raymond James. "If they can move that up even a small amount it is better than what they are going to see elsewhere. They are just not going to get that kind of growth in most parts of Louisiana."
Iberiabank also agreed to buy a clean bank in terms of credit quality. At Dec. 31, First Private had no nonperforming assets and no loans that were past due 90 days or more.
It is the second deal for Iberiabank so far this year. It agreed last month to acquire the $857 million-asset Teche Holding in New Iberia, La. That deal is built on its potential cost savings Byrd and his team have said that they expect to cut about half of Teche's annual expenses.