A thrift's unusually structured deal to take over a nonbank commercial lender encapsulates the key challenges facing both sectors: capital for the depositories and funding for the finance companies.
Everbank Financial Corp. of Jacksonville, Fla., said last week it had agreed to buy Tygris Commercial Finance Group Inc. in an all-stock transaction.
As part of the deal, Tygris, which is owned by a consortium of private-equity firms, would inject $65 million of cash into its buyer before closing. Taking over Tygris would also add $470 million to Everbank's capital base.
After expanding assets by a third, to $8 billion, Everbank has nearly exhausted a $100 million infusion it received from private-equity investors last year and needs still more capital to keep growing.
Tygris, on the other hand, has capital to spare but wants to become part of a depository to gain a cheap and reliable source of funds. The lender is one of several nonbanks that tried unsuccessfully to buy banks after their usual sources of funding dried up, but regulators have blocked many of those deals, and Tygris opted instead to sell itself to an insured institution.
"They were seeking a partner that would provide low-cost and stable funding to support their business lines," said Robert Clements, Everbank's chairman and chief executive. "We were looking for additional growth capital. … Early on both parties realized this is a good strategy that fits."
Industry watchers said more of those nonbanks may seek to be acquired, bringing much-needed capital to their new bank owners.
"Absolutely more could do this," said Nick Barbarine, a principal with the investment bank Hovde Financial Inc. "Think how stringent the rules are to buy a bank. One way of entering the industry is basically investing in a bank, taking a sizable position that regulators are comfortable with, then using that to accomplish whatever business plan they have."
Tygris, in Parsippany, N.J., previously sought to acquire the $8.9 million-asset Texico Bancshares Inc. in Illinois late last year.
Tygris would not comment for this article. Texico's president, Ken Mathis, said it was never made clear to his side why the deal was never completed.
However, in similar cases regulators have set up roadblocks. For example, NewStar Financial Inc. of Boston terminated its deal to buy Southern Commerce Bank in Tampa because the Federal Reserve was resistant to its plan to transfer some assets to the bank.
Everbank's acquisition of Tygris is expected to close this year. The price and other key terms were not disclosed, so it is unclear how big a stake Tygris' current owners would get in Everbank.
Tygris' shareholders include Aquiline Capital Partners LLC, New Mountain Capital LLC, TPG Capital, Diamond Castle Holdings LLC and Hamilton Lane. Clements said none of them plans to apply for holding company status. (Typically, a holding company application is required only if an investor owns more than 25% of a thrift.)
Tygris' businesses include asset-based lending, in which it provides financing secured by a customer's inventory or receivables, corporate finance and equipment leasing.
"This looks like an opportunity for Everbank to align themselves with a firm that generates good asset growth that will drive Everbank's income," said Terry Keating, a managing director in the Chicago office of Amherst Partners LLC, an investment bank.
Commercial finance companies like Tygris typically lend to firms that banks won't, he said. Because of the added risk, the loans are often monitored more closely, and finance companies charge higher rates for them.
However many banks have commercial finance units that complement what the bank does, Keating said.
"Asset-based lending is a nice complement to commercial lending," he said. "A commercial lender might say 'a company doesn't fit what we do as a bank, but it fits what the guys at the asset-based lender do.' "
Everbank has only five branches in the Jacksonville market. It gets most of its deposits through the Internet.
After receiving a $100 million investment from Sageview Capital LP, it ramped up mortgage originations around the country.
"Our capital ratios today are well capitalized," Clements said. "But we are close to full capacity in terms of looking at future growth opportunities, and it is clear that this is a great environment to have ample capital to really pursue unique opportunities that this market is presenting."
At the end of June, Everbank's thrift unit had a 7.47% leverage ratio and a 13.98% total risk-based capital ratio, Federal Deposit Insurance Corp. data showed. Following the acquisition those ratios are expected to increase to an 11% leverage ratio and a 19% total risk-based capital ratio.