Executives at Synovus Financial realize that they should likely aim for a single rather than a home run when they return to the M&A game.
The Columbus, Ga., company bought dozens of banks as it became a formidable Southeastern regional before it was largely sidelined by the financial crisis.
Chairman and Chief Executive Kessel Stelling, who is eager to resume making acquisitions, has recently been focused on internal operations and capital management. But he hopes his company’s much-improved capital position and stock price, along with the time management spent focusing on internal issues, have prepared it to start buying again.
“I think hopefully we have benefited from [a pause in M&A] and now have a currency that would certainly allow us to look at opportunities through a different lens,” Stelling said during call Tuesday to discuss the company’s third-quarter results. “We’re seeing a lot of opportunities.”
For its first deal, the $28.2 billion-asset company would look for something with a “very high probability of execution success” that wouldn’t distract management from its daily core operations, Stelling said. That long-anticipated deal is unlikely to be a game changer, he added.
Timing for a potential deal is difficult to gauge, though it seems as though Synovus would closely scrutinize anything that it comes across, said Emlen Harmon, an analyst at Jefferies. “They’re not in a rush … and the due diligence would be fairly drawn out,” he said.
Stelling also noted that deal activity had reached a “pretty brisk pace” across the Southeast.
Bank of the Ozarks in Little Rock, Ark., agreed on Monday to acquire Community & Southern Holdings in Atlanta. A day later, Renasant in Tupelo, Miss., said it would buy Keyworth Bank in Johns Creek, Ga.
Still, Synovus is willing to wait for the right acquisition, he said.
“I’ve often said patience has been our friend in the M&A world,” Stelling said. “I see other transactions that are interesting and that's great, and I applaud those that are doing them. But we've got a very disciplined approach to how we’re going to look at those, and if they fit, they fit. If they don't, that's okay.”
Stelling’s remarks make sense in the context of Synovus’ long history of acquisitions, said Chris Marinac, an analyst at FIG Partners. As the company’s price-to-tangible book value rises, M&A could become more appealing, from an earnings perspective, than stock buybacks, he said.
Synovus should be able to create value by removing back-office expenses and adding products at any bank it buys, Marinac said. This is already being done by other Southeastern acquirers such as Bank of the Ozarks; BNC Bancorp in High Point, N.C.; and United Community Banks in Blairsville, Ga.
“The company has excess capital and has to deploy it wisely,” Marinac said. “I think small acquisitions, at moderate premiums, can make a solid incremental impact to earnings” and increase its return on assets.
Synovus’ stock trades at a modest premium to other similarly sized banks, while its tangible book value is closer to the group’s mean, Harmon said. A smaller deal would make sense because Synovus could pay the consideration with a high percentage of cash.
“They aren’t in the catbird seat, but they aren’t in the penalty box anymore,” Harmon said.