Magazine article American Banker

Why It's So Hard to Time Bank M&A Decisions

Magazine article American Banker

Why It's So Hard to Time Bank M&A Decisions

Article excerpt

Byline: Paul Davis

A stagnant stock price drove the frustrated board of Southwest Bancshares in Stillwater, Okla., to look for a buyer.

Internal discussions about selling began in June 2016 as directors fretted over a stock price that "had been relatively flat" since late 2013, according to a regulatory filing tied to the $2.6 billion-asset company's pending sale to Simmons First National in Little Rock, Ark.

The story that unfolds in the filing is a lesson in timing. However, it's in the eyes of the beholder as to whether it's a good lesson or a bad lesson. Unforeseen events several months later -- the election of Donald Trump as president and the huge lift it gave to bank stocks -- would completely change economic conditions after deal negotiations had begun.

Southwest's stock price shot up last fall after the election as part of the overall run-up in bank stocks. By that time, the company was well into talks to sell itself to the $8.6 billion-asset Simmons. The deal, announced on Dec. 14, was the ninth-largest bank acquisition of 2016 and one of the year's richest by premium paid.

Mark Funke, Southwest's CEO, first mentioned a potential deal to George Makris, Simmons' chairman and CEO, just days after the board decided to explore a sale. But Southwest approached other banks, too.

In July of last year Funke discussed the potential of a transaction with a large, unnamed bank in Texas. A month later, Southwest executives met with the CEO of another Texas bank to revisit a prior discussion from 2015 about a potential merger of equals.

In the meanwhile Southwest continued to manage itself as though it would stay independent, approving a series of cost-cutting moves and pursuing an acquisition in Texas. The acquisition target, however, declined Southwest's letter of interest in early August.

By mid-September, Simmons and the larger Texas bank entered confidentiality agreements with Southwest. The second Texas suitor was still operating under a 2015 confidentiality agreement.

Simmons and the larger Texas bank quickly submitted letters of interest, making offers that were not detailed in the filing. Simmons, when pressed by Southwest's investment bank, said it would be willing to raise its bid; the other bank would not budge. …

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