Magazine article American Banker

Stocks: Analysts See Revenue Gains for 2 Acquisitive Companies

Magazine article American Banker

Stocks: Analysts See Revenue Gains for 2 Acquisitive Companies

Article excerpt

Many banks succeed in acquiring other banks and produce higher profits by slashing costs. Far fewer have been able to spur revenues through a merger.

Two of these unusually successful acquirers announced deals on Wednesday. In California, Greater Bay Bancorp said it would buy Coast Bancorp in a deal valued at about $125 million in stock, a 6.2% premium to Wednesday's trading price. And Winston-Salem, N.C.-based BB&T Corp. said it would buy First Banking Company of Southeast Georgia for $124.2 million in stock, a 2% discount from what the stock had been selling at before the announcement. First Banking's stock had run up in anticipation of a merger announcement, analysts said. (See related stories on page 1.)

"It's less common to see both cost saving and revenue growth in acquisitions," said Joe Morford, an analyst for Dain Rauscher Wessels in San Francisco. "At the end of the day, investors are rewarding those companies with higher P/Es -- companies that can consistently deliver above-average earnings growth primarily driven by revenue gains."

Mr. Morford said Greater Bay has been able to boost its earnings by buying community banks, then bolstering revenues at the new subsidiaries by offering a wider array of financial products. Acquired banks keep their names, and Greater Bay assumes the target bank's back office operations.

"While their pace of revenue growth is not sustainable, we look for Greater Bay to deliver above-average revenue growth for the next year," Mr. Morford said.

Though both BB&T and Greater Bay have been aggressive acquirers, most of their quarry have been relatively small and easy-to-digest banks. BB&T has made five acquisition deals in Georgia this year, and Greater Bay agreed to two other deals in recent months.

Some larger acquirers also have been successful. …

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