Stock in private banks has tended to be the bad penny of deal currency — selling shareholders much prefer to be paid in cash or publicly traded shares they can unload fast.
But a lack of publicly traded banks with buying power means more hometown banks should — and will — lose their aversion to illiquid suitors, one investment banker says.
Private-stock deals offer many of the financial perks of public-stock deals, Curtis Carpenter, a managing director with Sheshunoff & Co. in Austin, Texas, said recently in making a pitch in favor of private-stock deals. He spoke Sunday at Bank Director Magazine's annual community bank mergers and acquisition conference in Phoenix.
Sellers get to defer taxes on shares received as well as an interest in a larger organization, Carpenter said. Buyers are often more willing to pay a higher price in all stock-based deals because issuing shares to the bank they are buying boosts capital. Stock deals also tend to have fewer intangibles than cash-based deals, which also preserves capital.
"When it's private, there is not a ready market for it. In the past there wasn't any receptivity to taking" that type of currency, Carpenter said in an interview. But privately held stock "is a way for buyers and sellers to kind of overcome the price gap" and get deals done in a tough M&A environment.
There are only a few public banks with buying power and a large number of community banks with profit problems, he said.
Only a dozen of the country's 174 publicly traded banks with more than $2 billion of assets are trading at two times tangible book value, according to Sheshunoff data. Those would-be buyers are generally seeking low-risk, low-cost deals that will add substantial scale or profits.
Carpenter — who specializes in advising the smallest institutions — said more of his clients are exploring stock deals with private banks, though none have been completed yet.
Deals paid for with private stock remain rare and are difficult to identify because their terms are often kept confidential. The privately held Talmer Bancorp Inc. of Troy, Mich., in December said it used stock to pay for some of Lake Shore Wisconsin Corp. in Glenwood in announcing the completion of the deal.
Talmer said in a press release at that time that many of Lake Shore's shareholders elected to receive shares of Talmer stock as part of the transaction. The $79.3 million-asset Lake Shore spun off its Hiawatha National Bank to its shareholders before the deal closed. The $2.2 billion-asset Talmer ended up with about $26 million of Lake Shore's remaining assets.