When Summit Bancorp recently said it was going after yet another major slice of the New Jersey banking market, investors cheered.
After all, Summit's planned $869 million purchase of Collective Bancorp- the second-largest deal unveiled last month-would bring its share of the state's deposit market to 16%, without serious dilution of earnings.
"People thought that the deal makes good sense because it adds value without diluting shareholders," said analyst David Stumpf of A.G. Edwards & Sons Inc., St. Louis, "and the market gave them credit."
Indeed, some banking industry observers on Wall Street noted that, while acquisition prices are historically high, transactions with minimal dilution have gone from rare to nearly routine during the 1990s.
The long and impressive rise of banking stocks, which has bestowed so much additional purchasing power on buyers, is, of course, a major factor.
"These are unprecedented times in terms of merger economics," said analyst Anthony R. Davis of Dean Witter Reynolds Inc., New York. Earnings- per-share dilution in merger activity is the lowest its been in almost 10 years, he noted.
At the same time, acquisitions by the major players in the banking industry seem to get bigger.
"The attitude emerging among the dominant superregional banks over the last 12 to 18 months is that to go through the machinations of regulatory approval and due diligence just to pick up another 50,000 households may not be worth it," Mr. Davis said.
"We're seeing surprisingly large transactions," he said: "acquisitions that 'get me there' in one fell swoop."
Mr. Stumpf agreed. "The big active acquirers are getting bigger with their deals. It is no longer meaningful for them to acquire a small bank. It's just not worth the paperwork."
Besides the sizable boost from the stock market, the focus on larger and more efficient deals also reflects the growing experience of acquirers.
"We've gotten better with practice," Mr. Davis said. "We've been doing this routine for 15 years, and banks have gotten this down to a science."
These developments have created something of a Catch-22 for banking companies like Summit, which has a long-standing goal of remaining independent but makes itself a more desirable takeover target every time it acquires another bank.
Summit's deal for Collective, a $2 billion-asset thrift institution, is the latest and largest of three rapid-fire acquisitions by the Princeton- based company, previously named UJB Financial Corp.
The latest deal gives Summit a truly statewide franchise, bolsters its standing as the largest independent banking company left in New Jersey, and makes it an even more prominent blip on the radar of other acquirers. In short, all the cheering by investors may not have been for Summit itself.
"Every time Summit makes a move they make themselves a more desirable franchise for others," Mr. Davis said. "With the addition of Collective, Summit has succeeded in making itself an even more tasty morsel."
Opinions vary widely as to who might bid for Summit, whose assets after including Collective's will approach $28 billion.
First Union Corp., Charlotte, N.C.; PNC Bank Corp., Pittsburgh; and Fleet Financial Group Inc., Boston, the big players in New Jersey, might face divestiture requirements under antitrust regulations that would make such a deal inefficient. That, of course, leaves many other names on the list of potential acquirers, ranging from NationsBank Corp. to major banks in neighboring New York City.
To be sure, some say a takeover of Summit has become no more likely now that it is about to take Collective under its wing. "The bigger you get, the more potential acquirers you can begin to eliminate," Mr. Stumpf said.
Summit's proposal to buy Collective was second in size during February to the unsolicited $5.9 billion bid by H.F. Ahmanson & Co. for its longtime Southern California rival, Great Western Financial Corp.
Indeed, Summit's deal was actually the largest of the month, since the Ahmanson offer is a hostile one quickly rejected by the target. In reaction, Great Western announced last week it had signed a definitive agreement to be acquired by Washington Mutual Inc.
Mr. Stumpf emphasized that, while the big deals are getting bigger, he believes much dealmaking will continue among smaller regional banks and thrifts. And indeed it did last month.
The third-largest transaction was the $338 million offer by CCB Financial Corp., Durham, N.C., to buy American Federal Bank, Greenville, S.C. Fourth-largest was the $325 million proposal by Sovereign Bancorp, Wyomissing, Pa., to buy Bankers Corp., Perth Amboy, N.J.