Steven W. Carson and W. Gray Medlin, investment bankers with the fledling Carson Medlin Co. are on a roll.
Last year, the three-year-old firm, which operates out of Tampa, Fla., and Raleigh, N.C., was and adviser in eight south-eastern banking mergers with a total purchase price of $231 million.
That more than doubles the deals it did in 1992. Nationally, the firm ranked 15th among merger and acquisition firms, up 11 slots from a year before, according to the investment bankers.
"If everything we are working on right now comes to fruition we could easily beat that number," said Mr. Carson.
But the duo isn't clear on how long the party will last. One reason is that falling stock prices of big banks could scuttle deals. On the other hand large banks, worried about interstate banking laws, could rush through more deals to protect their market share.
Mr. Carson and Mr. Medlin say that while prices being paid for community banks are good, they have probably hit a peak: That doesn't mean, however, that bankers who didn't sell won't be able to command a high price in the future, they say.
Mr. Carson, 40, met Mr. Medlin, 41, at Williams Securities Group Inc., Tampa, Fla., where the two worked on community bank mergers and acquisitions. In 1991, they quit to form their own firm. Here is what they had to say about the community banking M&A activity.
Q.: With all of the deals you did last year you must have gotten rich?
MEDLIN: I wish.
Q.: You mean you can't take this year off?
MEDLIN: I wouldn't want to take this year off even if I could afford it.
Q.: So, it's that hot of a time in the community banking M&A business?
CARSON: The market is very hot. We are in a cycle right now where stock prices are relatively high, and bankers have solved most of their internal challenges. Now, they are looking outside to ask the question, "What can we do to improve the value of our franchise."
So they are looking to make acquisitions now.
Q.: How much is a healthy community bank selling for in your neck of the woods?
MEDLIN: A really attractive transaction would be in excess of 15 times earnings and two times book.
Q.: Are prices for small banks going up?
CARSON: From a fundamental point of view we are probably at a peak as far as earnings. From that point of view I see prices staying the same, not going significantly higher. The factor that is very hard to determine is what will be the effect of interstate banking.
Q.: If prices have peaked, have community bankers missed the boat by not selling?
MEDLIN: It doesn't mean it's time to panic. Just because they didn't do it this time doesn't mean they won't be able to do it at just a high of a price three years from now.
CARSON: The point is they don't have to sell. If they have done the things necessary to build value in their bank, they have the luxury of either accepting or rejecting an attractive offer.
Q.: You mentioned prices also depend on interstate banking. Why?
CARSON: Nobody knows exactly what the effect is going to be. Common knowledge is the merger and acquisition market for community banks should heat up and continue to stay strong because of out-of-market banks coming in and looking to acquire banks to build a franchise.
From that point of view, we think, it will continue to be very strong.
Q.: Where are the hot M&A markets?
MEDLIN: This is a guess, but my opinion is Georgia and Tennessee.
CARSON: Don't get us wrong, Florida and North and South Carolina will continue to have their share of activity. I think other states will step to the forefront.
Q.: Why Tennessee?
MEDLIN: Maybe a lot of it has to do with geography. It is in close proximity, particularly the eastern part of the state, to several states. It is sort of the natural extension of the activity.
Q.: What banks want in?
MEDLIN: First Alabama - now called Regions - South Trust, and AmSouth.
Q.: Which community banks are the aggressive buyers?
MEDLIN: I can think of several companies in each state that I consider the up-and-comers: Intercontinental Bank in Miami, First United in Boca Raton, First National Bancorp in Gainesville, Ga.
Intercontinental has done half a dozen small acquisitions in its market. First National has probably acquired a dozen times over the last couple of years.
In South Carolina, there is Carolina First in Greenville; it is on a rapid expansion path. In Virginia, there's F&M National.
Q.: Who's for sale among the small banks?
CARSON: I don't think you will find any particular bank that will admit they are for sale, but many of them will listen to offers.
Q.: What's the single biggest reason community banks want to sell?
MEDLIN: It often has to do with succession issues. You may have a group that formed and managed the bank and they haven't arranged for management succession.
Right now there are a lot of independent banks that are truly, truly frustrated with the level of regulation that only continues to get worse. The large companies know it.
Q.: Do the big banks use this to their advantage?
CARSON: They are using that as a selling tool. They are saying, "Hey, if you come join us, you won't have to worry about regulation anymore."
Q.: Do a lot of small banks bite on the pitch?
CARSON: More so than you would imagine. It is just the accumulation of year after year of regulations.
Ten years ago I never heard of a community bank selling because they were frustrated with the level of regulation. Today I would guess as many as half of them list the burden of regulatory matters as very high on their list.