Financing Creative Banking M&As

Edon Shaqiri

In last month's issue of the American Banker Magazine, Matt Monks writes about the different acquisition strategies that have recently been implemented by community banks. The "wild swings in the equity market" and the not so promising job market riddle have really kept a lot of banks from changing hands. However, with that said, a number of community banks have been thinking outside the box in solving for merger pricing and different loan valuation techniques.

One of the alternative financing approaches in dealing with acquisitions that the author cites is the pay-for-performance principle. In his commentary, Monks focuses on the private equity-backed bank, Wintrust Financial of Lake Forest Illinois and the insight behind some of the bank's more complex capital structuring transactions.

In one of the more recent acquisitions by the $15 bn. asset lender was a deal for Elgin State Bancorp of Elgin. Earlier this year, Wintrust Financial agreed to pay $13.75MM and dish out another $1.5MM in cash if Elgin State Bancorp loan's performed well over the next three years. Purchase price is really dependent upon and tied to the future profitability measures of the acquired firm.

When factoring in the slumping economy, especially the volatile equity markets, it makes sense for executives to sit down and critically reevaluate the different assumptions and implications of mainline M&A transactions. With all other things being equal or held constant, we will begin to see and hear relatively more about creative deal making in the banking sector with final purchasing agreements that rest on the future loan losses and/or profits of an acquired bank.

About Wintrust

Wintrust is a financial holding company with assets of approximately $15 billion whose common stock is traded on the NASDAQ Global Select Market. Built on the "HAVE IT ALL" model, Wintrust offers sophisticated technology and resources of a large bank while focusing on providing service-based community banking to each and every customer. Wintrust operates fifteen community bank subsidiaries, now with 99 banking locations located in the greater Chicago and Milwaukee market areas. Additionally, the Company operates various non-bank subsidiaries including one of the largest commercial insurance premium finance companies operating in the United States, a company providing short-term accounts receivable financing and value-added out-sourced administrative services to the temporary staffing services industry, companies engaging primarily in the origination and purchase of residential mortgages for sale into the secondary market throughout the United States, and companies providing wealth management services.