Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Nashville, Tennessee is well known as the country music capital of the world, less so as a mecca for baseball. But that didn't keep management of Nashville-based Pinnacle Financial Inc. from invoking home runs in describing the bank's latest deal.

Pinnacle late Sunday announced its biggest acquisition yet: A $2 billion purchase of BNC Bancorp, the owner of the Bank of North Carolina, in an all-stock transaction. It's the latest example of a trend Gadfly identified back in November: namely, of banks -- armed with improved valuations from post-election stock gains, pursuing deals using their own shares as currency.

Pinnacle's own gains -- some 20 percent since Donald Trump's presidential victory -- likely helped management get comfortable with the transaction, which is 10 times the size of any of its previous acquisitions.

Making All-Stock Deals Great Again
It's no surprise Pinnacle Financial is using stock to finance its purchase of BNC Bancorp, announced Sunday. Its shares are trading close to their all-time high, thanks to the Trump rally.
Source: Bloomberg

The offer price may be viewed as disappointing by some BNC Bancorp shareholders -- it's at a small premium to the company's closing price Friday of $33.20. But the shares had already climbed 34 percent since the election. And because the transaction is all-stock, BNC Bancorp investors are inheriting access to Pinnacle's shares, which are valued at a premium to rivals (both on a price-to-earnings and price-to-tangible-book-value basis). Also, they'll be able to partake in further gains if the combined bank thrives. 

Life Since Nov. 8

The deal itself makes sense, and in hindsight, was teased by Pinnacle's Chief Executive Officer Terry Turner as recently as the company's earnings call last week. Turner described an attractive merger candidate as one that would deliver earnings per share accretion of more than 5 percent, with more than $1 billion in assets, a focus on commercial banking and management that remained on board to run that market. BNC Bancorp ticks these boxes: It's a commercial bank with assets of $7.4 billion, its EPS accretion in 2018 is set to be 10 percent and its CEO Rick Callicutt is staying on at Pinnacle in a newly created role of chairman of the Carolinas and Virginia. 

There's a lot more to like. The deal takes the bank's combined assets well past $18 billion -- immediately helping Pinnacle exceed its stated goal of reaching $15 billion by 2020 through organic growth. And it gives Pinnacle access to key southeastern markets including North Carolina's Charlotte and Raleigh, which are in the region's top 10 most densely-populated metropolitan areas. An added plus: Both have expected population growth of more than 7 percent. 

On a call with analysts on Monday, Pinnacle Chief Financial Officer Harold Carpenter described the transaction as a "pitch down in the middle of the plate," and that the combined company would be poised to "launch it down the middle of the park." 

It's somewhat reassuring that Pinnacle has had success integrating its previous purchases (although admittedly, they were much smaller). The bank planted its flag in Memphis and Chattanooga through acquisitions of Magna Bank and CapitalMark Bank & Trust respectively. 

In another year, perhaps, investors will be cheering from the bleachers. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net