It ranked as the richest takeover of 1995, but Colonial BancGroup maintains that the 350% of book value it paid for Southern Banking Corp. was a good deal.
Colonial, based in Montgomery, Ala., now has a vehicle with which to enter Florida. Southern, whose principal subsidiary is $225 million-asset Southern Bank of Central Florida, has reported rapid growth and will likely form the base for Colonial's expansion in the Sunshine State.
"We feel like this gets us into the central Florida market with individuals who are active in that market and have many contacts," said Walter E. Hargrove, senior vice president at Colonial. "This is a beginning for us in Florida."
And that points up one of the best ways to get a high price for a bank: Find the buyer who wants it most.
Colonial exchanged more than 1.6 million shares of its own stock, with a market value of about $50 million, for all the outstanding shares and options of Southern Banking Corp.
"Most of our acquisitions are based almost entirely on earnings and earnings potential, as opposed to price-to-book," said W. Flake Oakley, chief financial officer at Colonial. "This bank has a tremendous management team and has demonstrated an ability to grow the bank. This is by far the best bank we've seen in Florida.
"We've done some 30 acquisitions over the time that I've been with the Colonial, and I have a better feeling about this one more so than any other."
Southern Bank was the largest independent institution in its three- county Central Florida area, which is among the fastest-growing markets in the Southeast.
"Colonial wanted to make a presence not only in Orlando but in Florida. We were a No. 1 draft choice, and it cost them, but we think they got a pretty good bank," said Charlie W. Brinkley Jr., president and CEO of Southern.
"We're a good bank in a good area with good management," he added. "I think just about any price is a bargain because we're unique. In addition, there really is a lot of similarities in management styles between ourselves and Colonial."
Analyst Christopher P. Kelley of Morgan Keegan & Co., Memphis, said a scarcity of independent franchises in Florida played a role in the deal's price.
"I think you've seen all the Alabama banks growing through out-of-state acquisitions because there's not a lot of room left in Alabama," Mr. Kelley said. "In order to grow, these companies have hit the peripheral states. They've got to go to where there's room to grow. The thing is, there isn't a whole lot of room left in Florida, either."
The South was ripe for rich price-to-book deals. SNL Securities in Charlottesville, Va., reported that eight of the top 10 acquisitions - in terms of price-to-book ratio - were in the South. These included two each in North Carolina and Kentucky. In addition, all but two of the richest acquisitions were in-state deals.
First Charter Corp., Concord, N.C., paid the second-richest price, taking over Bank of Union in Monroe, N.C., for 304% of book value, and Whitaker Bank Corporation of Kentucky's deal for Mount Sterling National Bank, Mount Sterling, Ky., was third, at 292% of book.
Mr. Kelley said book-value considerations can often take a back seat to the profit potential seen in an acquisition.
Southern, with eight offices in central Florida, wasn't Colonial's only deal in 1995. The $3.7 billion-asset holding company also picked up Dothan Federal Savings Bank, Dothan, Ala.; Commercial Bank of Georgia, Atlanta; Mount Vernon Financial Corp., Atlanta; and Farmers and Merchants Bank, Ariton, Ala.
Colonial also merged with Colonial Mortgage Co., a private mortgage company with 21 offices in 11 states.
The banking company was able to fund at least some of its acquisitions through a year of record earnings. Net income in 1995 was nearly $39 million, a 42% increase from 1994. Its stock price jumped 60% during the year.
Colonial posted a return on assets for 1995 of 1.20% and an ROE of 17.94%, a little less than Southern's 1.40% ROA and 18.52% ROE.
Southern's Mr. Brinkley said he had been approached by other suitors but management felt the bank wasn't ready for a deal.
"We needed to get our book value up and earnings up to where we wanted them to be before we really started considering merger deals," he said. "Two years ago wasn't the right time, and we calculated that the window of opportunity would be between 1996 and 1998."
Mr. Hargrove of Colonial said the high price-to-book ratio was partially explained by Southern's achievements. "This bank is growing very quickly," he said. "And they're well leveraged, so any price-to-book looks sizable."
