The news July 6 hit David T. Popwell like a cold shower. R. Brad Martin, the chief executive of Proffitt's Inc., had agreed to buy the parent of Saks Fifth Avenue for about $3 billion.
"I said to myself, 'I could be the greatest tax and business lawyer ever in Memphis and not do what he's just done.'" said Mr. Popwell, who was head of mergers and acquisitions at the biggest law firm in Tennessee and friend and counsel to Mr. Martin. "I was wondering if I had topped out at 38, and decided that if I got a chance to do something bigger, I would think about it seriously."
The chance to do something bigger came 11 days later, on July 17. Thomas M. Garrott, chairman of National Commerce Bancorp., urged Mr. Popwell to stop being a deal adviser and come work for him as a dealmaker.
The offer "reeked of opportunity," Mr. Popwell said, and he left the firm of Baker, Donelson, Bearman & Caldwell to join to National Commerce Sept. 1 as the bank's head of mergers and acquisitions. The switch marked not only a major career change for him, but a tectonic shift in the banking company's strategy.
During the summer Mr. Garrott, 60, had considered selling his $5.3 billion-asset company, people familiar with the matter say, but was unable to find any takers at the right price. National Commerce's stock is so highly valued and its business lines so specialized that few companies had the means or desire to pay a big premium, sources said.
So instead of selling his company, Mr. Garrott decided to hire Mr. Popwell to help build it. "The difference between you and me," he told Mr. Popwell, "is that when I was young, I wanted to be a capitalist. I want to teach you how to be a capitalist."
In Mr. Popwell, Mr. Garrott got what Memphis' business elite consider one of the city's sharpest lawyers.
"Popwell's the kind of smart, driven guy who will do well at anything he does," said Chip Grayson, an investment banker at Morgan Keegan & Co. in Memphis, who knows him from when both worked at Baker Donelson.
Mr. Popwell joined Baker Donelson in 1987 as a tax lawyer after a stint at the predecessor to accounting firm Ernst & Young, where he worked with current National Commerce chief financial officer Lewis E. Holland. One of his jobs was auditing National Commerce's books.
Baker Donelson's partners then sponsored his attendance at New York University's law school, where he edited the law review.
He returned to the firm in 1990, and his tax law expertise brought him in contact with corporate bigwigs and entrepreneurs throughout Tennessee and the South, including Mr. Martin, who later bought Saks. "I got into this because I wanted to represent entrepreneurs," Mr. Popwell said.
Gradually, clients who originally sought his advice on tax matters started bringing him in for sessions on corporate strategy. "I guess they figured, he's the tax guy and we're going to need to see him anyway, so they started calling from the start," Mr. Popwell said.
His work caught the eye of National Commerce chief Mr. Garrott, who, after failing to sell his business, decided to build it via acquisitions.
That decision comes when most competitors are shying away from the M&A market. Banks and thrifts announced 169 merger deals worth a total of $188 billion in the first half of 1998, but only 74 worth $22 billion since, according to Securities Data Co. Investment bankers say most chief executives are reluctant to make deals when the average stock price of a bank has fallen 30% since mid-July.
National Commerce's stock has fallen 42% from a peak in July when takeover speculation bloated its value, but it still trades at 18.1 times estimated earnings-above the industry median of 15.6 and better than most bigger, acquisition-minded companies such as BB&T Corp. or Union Planters Corp. That means National Commerce has a more valuable stock to offer potential sellers.
It trades so highly because most analysts consider it one of banking's most frugally run and best-performing companies. National Commerce spent only 48 cents in the third quarter to make a dollar, and reported a lofty return on equity of 22.5%. The company's low-cost, easy-to-understand growth strategy of setting up shop in supermarkets is another plus.
But that strategy has its drawbacks. Analysts say supermarket banking is great for attracting deposits, but less than ideal for generating loans- where banking's real profits lie.
Mindful of that, chief financial officer Lewis Holland said Mr. Popwell's job is to find banks that have appealing loan portfolios in areas where National Commerce already has branches. By acquiring the loans and gutting the target company's costs, National Commerce figures its expansion strategy can pay off faster for shareholders.
"It's an acceleration of our current program," Mr. Holland said, "but it's not a change in direction."
He said the company expects to focus on such markets as the Chattanooga- Atlanta corridor, Raleigh-Durham, N.C., Roanoke, Va., and Nashville and Knoxville, Tenn. Any deal, he emphasized, would have to add to earnings right away.
In addition to bulking up the company's loans, Mr. Popwell says he wants to bulk up its money management and capital markets business, perhaps through acquiring some small firms. "We do have a mystique, and there is an opportunity," he said.
Balancing his dealmaking ambitions with National Commerce's conservative culture will be the biggest challenge of his new career. He said he understands the realpolitik of dealmaking, recognizing that companies eager to sell are often not worth buying. "Most good boutiques have no reason to sell," Mr. Popwell said.
In the meantime, Mr. Holland insists National Commerce is not selling to anybody, though he acknowledges it hired investment bankers this summer, something it does regularly, to help with its "strategic alternatives." (To most analysts such corporate jargon usually means "fielding bids.")
But that was before Mr. Popwell came along. Now, armed with an affable would-be dealmaker with big ambitions, the future at National Commerce is looking quite different than it did only a few months ago.
"Garrott told me to look at this job as my career for the next 20 years," Mr. Popwell said. "So that's how I'm looking at it."