Why Synovus is betting big on Florida — again
Synovus Financial in Columbus, Ga., is making a big splash with its return to the M&A pool.
The $31 billion-asset company, stung by deals made before the financial crisis, had largely avoided bank acquisitions since then. Still, management had spent the last three years signaling that it could return to M&A.
The company finally struck, agreeing to buy the $11 billion-asset FCB Financial Holdings in Weston, Fla., for $2.9 billion. Besides increasing Synovus' size by nearly 35%, the acquisition would give it significant scale in a state where it has had operations for decades.
“Strategically, it’s right in the sweet spot,” Kessel Stelling, Synovus' chairman and CEO, said in an interview.
“The real story here is that we have been very patient and very disciplined so that if the right transaction presented itself, we could act,” Stelling added. “It’s hard to predict what size institution that might be. We said it had to be strategically compelling and then it had to meet some very stringent financial criteria.”
Synovus hadn't been completely idle, buying a failed bank in 2013 and scooping up Cabela's bank last year as part of the complicated deal that involved the retailer and Capital One Financial.
FCB is a much bigger deal, the second-biggest bank acquisition announced this year. It also sends a strong signal that Synovus, long rumored to be a takeover candidate, is determined to stick around for a while.
“This is a strategic shift for a company that clearly wants to stay independent," said Chris Marinac, an analyst at FIG Partners.
Acquirers rarely turn around and sell themselves, industry experts noted. Synovus also seemed to set up its succession plan when it hired Kevin Blair as its chief financial officer in 2016, said Brady Gailey, an analyst at Keefe, Bruyette & Woods.
Stelling, who is in his early 60s, "doesn’t need to sell the company with such a strong No. 2,” Gailey said. “He's going to be a great leader for the next phase of the company’s growth.”
More large-scale acquisitions involving regional buyers could take place in coming months, due in part to regulatory reform, industry experts said. Synovus, for example, is no longer in danger of becoming a systemically important financial institution. That threshold was recently raised from $50 billion to $250 billion.
Stelling, for his part, said he would have bought FCB even if the original SIFI threshold remained in place.
“This was just a deal that would have made sense before or after" regulatory reform, Stelling said during a Tuesday conference call to discuss the deal. "Certainly, with the $50 billion cap moving, it give us some breathing room. But this was a compelling transaction and the bill would not have altered my thinking.”
While the size of the deal surprised her, analyst Nancy Bush said it was “accepted wisdom” that Synovus would get bigger.
"I’m quite impressed," Bush added. "This is one of the best deals I’ve seen in a while.”
Not everyone is sold.
“The transaction presents integration and operational risks for Synovus given that is its first bank acquisition in very long time," said Rita Sahu, a vice president at Moody’s Investors Service. "It is also very sizable, as FCB accounts for 38% of Synovus’ total assets."
Much of the deal's success will depend on the performance of the Florida market, an area that caused headaches for Synovus a decade ago. Synovus is set to gain nearly $10 billion in deposits and 50 branches across the state, including its first operations in cities such as Miami, Daytona Beach and Palm Beach.
“This is a bet on South Florida,” Marinac said. “The south Florida economy has to hold.”
Much has changed in the industry and in Florida since the financial crisis, Stelling said, pointing to better underwriting and increased regulatory oversight. Synovus, which conducted due diligence on about 70% of FCB’s loan book, will keep Kent Ellert, FCB's president and CEO, to oversee the Florida market.
"We believe we're acquiring a great team," Stelling said. "This is not about cutting costs."
While Synovus would consider more acquisitions in the future, it is concentrating on integrating its first major acquisition in a dozen years.
“This makes us a stronger company, which then makes our strategic options even greater,” Stelling said. “We will continue to watch, but right now our focus is not on the next deal. It’s on the one in front of us.”