Comments from two bankers speaking at the annual Acquire or Be Acquired conference piqued my interest. Jim Ryan, CEO of the $20 billion Old National Bancorp, and Dave Provost, executive vice chairman of the $47 billion of TCF Financial Corporation, cast light on a couple of big industry deals.
In fall of 2017, Old National Bank of Evansville, Ind., purchased Anchor Bancorp of St. Paul, Minn., in a $2.1 billion deal. Ryan said the deal is an example of the kinds of deals Old National likes to do — deals that he calls partnerships. “You can’t acquire people; you have to partner with people,” said Ryan. “This business is all about partnerships with your clients, your communities and partnerships with your employees. Anchor was one of those institutions that was really looking for a partner. It was owned by a family, and it turned down higher dollar prices because it was trying to find the right partner.”
Ryan explained that Anchor’s demographics were attractive to Old National, which had a very strong base of core deposits. Anchor, being located in a metro area home to more than a dozen Fortune 500 companies, offered tremendous opportunity to make new loans.
“Our cost of core deposits is 43 basis points,” Ryan said. “Anchor in Minnesota was really an opportunity to deploy those deposits. If you look at our risk-weighted assets to total assets ratio, we have lower risk-weighted assets than most of our peers, so it’s an opportunity to redeploy our good strong core funding.”
Acquisitions are likely to remain an important part of the Old National strategy, Ryan said. About a year after it closed on the Anchor deal, it boosted its Twin Cities presence by purchasing Chaska, Minn.-based Klein Financial.
“We run the organization with organic growth first, but I got to tell you, we are entering a time where we have slowing GDP, and slow balance sheet growth,” Ryan told the general session audience of about a thousand people. “Scale is incredibly important for our company. The last few years we have been able to put up 400, 500, 600 basis points of operating improvement year over year. Our efficiency ratio is 10 percent better than it was just a few years ago, and that came because of scale. Scale will become increasingly important where interest rates are not our friend. This is a very tough operating environment to be in. Acquisitions — partnerships — are a great way to drive improvement.”
Ryan noted the challenges of integrating two operations that are some 500 miles apart. “We have learned there are no substitutions for in-person meetings,” Ryan summarized. “You have to be on the ground. There is extra time and money involved but it is hard to build culture; it is hard to share values; it’s hard to work on the relationship-building over the phone. If we are going to get the synergies we promised Wall Street — real cost savings and revenue opportunities — you build those relationships, with employees and clients.”
TCF Financial merged into Chemical Financial Corporation last August. TCF has moved its Wayzata, Minn., headquarters to Detroit, where Chemical was based. Craig Dahl, the president and CEO of TCF, shared insights into the deal when he addressed the Bank Holding Company Association Fall Seminar last October; now, it was Provost’s turn to share thoughts from his side of the deal.
“For us, it was diversification,” Provost said, noting the bank was limited given economic conditions in Detroit and throughout Michigan. “Geographical expansion and product expansion, we were able to do that when Chemical and TCF merged. Scale, regulatory burden and the IT component were other reasons we wanted to get together.”
Like many deals, the TCF/Chemical deal started with a conversation. “Craig Dahl and I met at a conference like this. We happened to be sitting next to each other at dinner,” Provost said. “He had just announced he is selling his auto loan portfolio. It was a $3 billion portfolio. I mentioned he happened to have $3 billion in deposits in Michigan. ‘Why don’t we talk about purchasing your branches?’ I asked. His response was, ‘Well, maybe we could do more than that.’ That was four years ago.
“We were both in time-out from the standpoint that we were doing a massive systems conversion at Chemical and he had CFPB issues, so we really couldn’t get together,” Provost continued. “But we remained very friendly, and when the time came that both of our issues were resolved, basically within the same month of each other, we got back together and put a deal together.”
Provost talked about some of the details of negotiating a merger of equals. “This is like a reverse divorce, where you have to go through and you have to determine who is going to get the house, who’s going to get the cottage, who’s going to get this, who’s going to get that,” said Provost, using the same metaphor Dahl used when he talked about MOEs at the BHCA seminar.
Provost said the name of the merged organization is important. “In our case, it was easy because I never liked the name Chemical. So TCF worked out fine. In fact, TCF stands for Talmer Chemical Financial … don’t mention that in Minneapolis,” Provost joked. Talmer Bancorp., which owned Talmer Bank & Trust, was purchased by Chemical Financial in 2016.
Other issues to work out included officer titles. Initially, the two talked about exchanging titles 18 months into the deal, but ultimately decided to adopt a more straightforward approach where Dahl was named president/CEO and Provost was named executive vice president. “In the end, I decided to give up the title and create over a billion dollars in value for our shareholders. I thought that was a good trade,” Provost said.
Provost said the companies have worked hard to merge the cultures, an effort that got underway even before the deal was closed. “We had an integration team and a culture team to really analyze what our cultures are, and see where the differences are and where we could put it together,” Provost said. “For example, I really don’t like a 20-slide deck when there are presentations; TCF really likes a good deck. So how are we going to do our management meetings, use an outline or a lengthy slide deck? Going through those issues is important so you can hit the ground running.”
Will there be more deals for the combined TCF-Chemical organization? Possibly.
“We are always in the market,” Provost said. “We view acquisitions as a core competency. This is our 13th deal since we started in 2008. This is an opportunity for us to constantly create value for our shareholders. You look up, down and sideways. You look at all the options. You have to constantly be having these conversations.
“You can’t date until you have a conversation; you can’t get married until you date. It’s a long process.”