An Acquirer's Priorities
March 13, 2015 2:06 PM
Dana Stonestreet, CEO of HomeTrust Bancshares in North Carolina, recently discussed his company's preferences when evaluating an acquisition. Here is a look at his checklist.
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Culture
All banks are keen on preserving a particular culture. Stonestreet specifically likes to gauge initial discussions to determine a seller's integration focus and ongoing commitment to HomeTrust.
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Geographic Footprint
HomeTrust has two requirements when evaluating the geographic compatibility of a deal. The add-on must be logical and efficient to operate.
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Growing Markets
Potential markets need to have more than just pronounced growth. For Stonestreet, they also need to have meaningful size, explaining his decision to enter Charlotte, N.C., and Roanoke, Va.
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Privately Negotiated Deals
HomeTrust, like Berkshire Hills Bancorp in Massachusetts, prefers deals where it gets the "first look" at a seller. Why? Stonestreet has very little interest getting into a bidding war.
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Positive Credit Analysis
HomeTrust wants to buy banks with "worked through, well-defined" loan portfolios and "conservative" credit marks, Stonestreet said.
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Engaged Lenders
Acquirers want more than just branches and existing relationships. A big draw is having a roster of lenders who will stay at the bank and lead future growth.
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Growth-Minded Seller
Ideally, HomeTrust can find targets that have a culture dedicated to booking earning assets and generating consistent revenue.
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Strong Core Deposit Base
Low-cost funding is becoming increasingly important, and it seems to be moving up the priority list for HomeTrust and other aspiring acquirers.
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Rational Pricing
Sometimes you have to pay up for a good franchise. Still, Stonestreet is looking for 10% earnings accretion and a reasonable earn-back period for tangible book value dilution.
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No Hidden Problems
This is where due diligence plays a major role. HomeTrust looks at a seller's exposure to mistakes, the magnitude of credit marks, undisclosed liabilities and any regulatory compliance deficiencies.
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Regulatory Impact
Any deal could have regulatory implications, whether it involves the Community Reinvestment Act, asset thresholds or other internal compliance structures. HomeTrust wants to have a grip on those before agreeing to a deal.
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Integration Risk
A largely catch-all category that includes the size of the selling institution, the number of branches and the complexity of the business model and existing systems.
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