Note to dealmakers: Do not count on the capital markets for acquisition money.

Former Bank of America honcho R. Eugene Taylor on Tuesday appears to be the latest serial acquirer to pay the price for relying on the fickle stock market for deal financing.

Capital Bank Financial of Coral Gables, Fla. — the $6.5 billion-asset consolidation vehicle he launched in 2009 — announced new and pricier terms Tuesday for a damaged North Carolina bank it agreed to buy in March and expected to have in hand by the end of this week.

Capital Bank in a regulatory filing detailing the new terms did not say why it agreed to raise the price 8% and dole out considerably more cash than initially planned for Southern Community Financial (SCMF), a $1.5 billion-asset bank in Winston-Salem with 22 branches.

The likely impetus is Capital Bank's long-delayed $300 million initial public offering, market watchers say. Capital Bank has yet to price its IPO, which it first registered for a year ago.

The initial deal depended on completion of the IPO, which was expected as early as this month but no later than September. Under the initial agreement, the deal would have been terminated if it had not closed by Sept. 26.

The new terms would free the 143-branch Capital Bank from having to go public to do the deal — its seventh in three years — by letting it pay in cash rather than a combination of cash and stock.

Southern Community investors would be paid $52.4 million, or nearly $4 million higher than in the initial agreement. They were to have received about $19.4 million in cash and about $29 million in Capital Bank common shares.

Southern Community shareholders would still be eligible to receive an extra payout of up to $22 million in cash over five years, depending on how certain loans perform.

The new deal, expected to close in the third quarter, is clearly better for Southern Community, market watchers say. It would fetch a price of at least 92% of its tangible book value, which is high for North Carolina banks and for banks with at least 5% of their assets overdue.

"The additional consideration is great for our shareholders," says F. Scott Bauer, Southern Community's chief executive. "It's an all-cash deal and … there's more certainty to it."

Bauer referred specific questions about the new terms to Capital Bank officials, who did not return a call for comment.

The new terms are less favorable for Capital Bank. With $197 million in excess capital at March 31, it should be able to come up easily with the $33 million in extra cash necessary.

But Taylor may have egg on his face, experts say, as he was forced to pay more for a troubled bank on his home turf. Taylor is a veteran of North Carolina banking who spent 38 years at B of A and left as vice chairman.

It does not help that earlier this month rival BNC Bancorp of High Point. N.C. agreed to buy First Trust Bank of Charlotte for $35 million, or 72% its tangible book value. That is considerably less than the valuation for Southern Community. About 8% of First Trust's banks assets are nonperforming, compared with 5.5% at Southern Community.

"They're giving away more value. The question I ask is are they paying over for this?"says Chris Marinac, managing principal and director of research of FIG Partners.

It is unclear whether the returns of the deal will justify the investment, particularly as Capital Bank has yet to detail the transaction's expected cost savings and credit marks, he says, adding that the few details it shared about the specifics and rationale for the new terms could add to the confusion.

The setback for Taylor in some ways mirrors the problems last summer that plagued John Koelmel, the chief executive of First Niagara Financial Group (FNFG) of Buffalo. He agreed to pay $1 billion for HSBC Holding's upstate New York banking franchise, making it contingent on a large stock offering to pay for the deal.

His reputation — and company's shares — took a beating after wild swings in the market complicated the offering. The deal was completed this year after First Niagara reworked the financing and cut its dividend.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.