Is Home Bancshares pressing luck in Florida with deal No. 13?

By John Reosti

Home Bancshares Chairman John W. Allison left no doubt he wanted Stonegate Bank … badly.

Not only did he call it “my dream deal,” but Allison said that for months if not years he feared a rival might snag the Florida bank. “If Stonegate decided to sell to somebody else, I would have been extremely disappointed the rest of my life,” he said.

His long pursuit ended this week when Home agreed to pay $778 million in cash and stock for Pompano Beach-based Stonegate.

Such obsessive talk naturally raises questions about the wisdom of any business transaction — especially in a state like Florida whose economy fell hard during the crisis years, hurting many banks that had expanded there, yet has blossomed again in recent years. Several bank deals have occurred there lately, including Iberiabank’s $1 billion agreement a nearly a month ago to buy Sabadell United Bank.

During a conference call about the deal, at least one analyst raised concerns that there are already signs that the Florida market’s comeback may be petering out. Similar questions surfaced after the Iberiabank deal.

Allison and Stonegate CEO Dave Seleski said worries about a new bubble were overblown.

“Some are concerned we’re overheating here” in South Florida, Raymond James analyst David Feaster said on the call.

“We’re still having a massive amount of people moving into South Florida, so I don’t think that’s necessarily a problem,” Seleski replied. “Is Florida starting to slow down a little? Yes, but that’s just how it is. We’re not seeing any asset- quality issues in our portfolio. We’re not seeing any more past-dues. In talking to my peers, we don’t see it.”

At Dec. 31, Stonegate’s nonaccrual loans totaled $8.6 million, or 0.38% of its $2.3 billion loan portfolio.

Allison said that he is “constantly looking” for signs flippers or speculators are affecting the market but that he has yet to see any.

“Can I be fooled? I don’t think so. I don’t think Dave can be fooled,” Allison said. “We live this. I’m constantly digging for information down there. I’m looking for crazy deals being done. … If there’s a bubble, it’s happening and we don’t see it.”

The deal was unquestionably bold. It is the largest in Home’s 20-year history, and the Conway, Ark., company announced plans Tuesday to offer $150 million in subordinated debt to help finance the transaction.

The $3.1 billion-asset Stonegate’s status as the sole American bank authorized to do business in Cuba added an intriguing twist to the deal that was strong enough to attract the attention of Arkansas Gov. Asa Hutchinson.

“I want to mention one thing,” Hutchinson said Monday during a brief ceremony Home organized to announce the deal. “[Seleski] and I talked about this. Stonegate has a presence in Cuba. This is something I hope we can capitalize on. I know this will be good for our agricultural community. I think it’s a great opportunity for the future. I’m delighted to have that Arkansas banking connection now.”

Allison said the Cuba link was not a significant factor in Home’s decision to purchase Stonegate, but he was quick to add that he sees “some pretty good opportunities coming down the road.”

“Dave likes [Cuba],” Allison said. “It’s an understanding process for our people to learn what he’s learned. The more he talks about it the more excited I get about it.”

Allison added that he and Seleski plan to visit Cuba “in the next couple of weeks.”

For his part, commenting on the conference call, Seleski described Cuba as a “kind of a sideshow compared to what we’re trying to put together in Florida.”

According to Home, the corporate parent of the $9.8 billion-asset Centennial Bank, the merged company will hold $5.1 billion of deposits in Florida, making it the state’s third-largest community bank. It will rank No. 1 among community banks in affluent Broward County, which includes Pompano Beach, as well as Sarasota County.

On its most recent call report, Stonegate reported noninterest expenses totaling $56 million for 2016. Noting the significant overlap in the two companies’ branch footprints, Home is calculating a 34% cost save, but Allison said it should be able to exceed that mark with little difficulty.

“This is really an in-market consolidation, so there will be substantial savings in this organization,” Allison said.

Home operates 68 branches in Florida, along the Gulf Coast and in the central and southern regions of the state. Stonegate operates 25 branches in South Florida.

The deal is expected to close in the fourth quarter. As soon as it does, Seleski will serve as a regional president, probably running Home’s entire Florida operation, Allison said.

Home has been an active buyer in Florida, acquiring 12 banks there since 2010. Stonegate, which reported net income of $28.9 million last year, is both the largest and the most profitable, Allison said.

“We’ve been known in the past for buying what they call dent-and-scratch banks where you have to fix them up a little bit,” he said. “Today, we’ve moved on to a great financial institution … [Stonegate] is truly the cream of the crop in Florida.”

Home and Stonegate have eyed each other for some time, according to Allison.

“We’ve been kind of dancing around Dave for two or three years and he has been dancing around us,” Allison said, adding that negotiations began in earnest in January.

In a conference call that month, Allison told analysts Home was working on some “nice transactions.”

Miami investment banker James Cassel, chairman of Cassel Salpeter & Co. Investment Banking, said one of Stonegate’s biggest selling points was its scarcity.

“There haven’t been a lot of new charters down here since 2007,” Cassel said Tuesday. “There’s only so many of these banks remaining. It’s not like there’s a huge crop that can come up and be sold.”

Cassel agreed with the deal’s architects that the South Florida economy is basically sound.

“South Florida is a pretty good market,” he said. “The economy is growing down here, and Stonegate has built a good bank.”

For now, closing its deal for Stonegate and ensuring a smooth integration process would be Home’s top priority, but Allison pointedly refused to rule out doing additional deals in the meantime.

“M&A is never off the table at this company,” he said.

 

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8 Winners and Losers in a Rising Interest Rate Environment

By Lou Carlozo

Timing a Fed rate hike is tricky, but forecasting the fate of various investments is another story.

If the shocking defeat of Obamacare repeal and reform proved anything, it’s this: Sometimes, a Magic 8-Ball works better at predicting major outcomes in the nation’s capital than, say, a pragmatic pundit. And so it goes with interest rate hikes and the Federal Reserve: Will they? Won’t they?

Is Fed chair Janet Yellen making the call with a Magic 8-Ball?

No matter the chances of correctly calling an interest rate increase – and an overwhelming number of observers see more of those coming in 2017 – certain industries and sectors stand to benefit, while others will suffer. Here is a look at eight sectors and investments that could win or lose as rates rise.

Winner: Domestic Banks

Higher interest rates mean more money made on loans and credit cards, but there are other reasons banks should do well no matter what the Fed does.

“Unlike most of the other companies in the S&P 500, they have little or no revenue from outside the U.S.,” says Ellen Hazen, senior vice president and portfolio manager at F.L.Putnam Investment Management Co. in Wellesley,

Massachusetts. “They benefit from the higher interest rates that are ultimately driving the stronger U.S. dollar without suffering from lower income.”

Loser: Debt-Intensive Industries

This rule of thumb applies as rates creep up: “Lenders and savers are winners and borrowers are losers in the broadest sense,” says Will Kenton, senior news and markets editor at Investopedia.

One investment tactic is to look at the companies that take on a lot of debt to finance their growing and operations.

Says Kenton: “Capital and debt-intensive industries such as telecoms, manufacturing, shipping and construction will suffer.”

Winner: Energy

As co-author of “The Association Between Federal Reserve Policy and Sector Returns,” Bob Johnson notes that energy is among the best performers when interest rates move up – finishing ahead of other winners such as consumer goods, utilities and food.

They all have this in common, though.

“People need to eat, brush their teeth and heat their homes whether the economy is strong or weak,” says Johnson, president and CEO of the American College of Financial Services in Bryn Mawr, Pennsylvania.

Loser: Home Construction

The higher mortgage rates that follow the Fed’s actions put a damper on real estate activity, says James Cassel, chairman and co-founder of the investment banking firm Cassel Salpeter in Miami.

If that happens, losers might include “construction-related businesses, like homebuilders,” he says.

But with mortgage rates still at historic lows, “I do believe there’s still some ways to go with additional rate increases before we see a material effect,” Cassel adds.

Winner: Home Improvement

When interest hikes compel would-be homebuyers to hunker down, they take on home improvement as a consolation prize – a good thing for Lowe’s Cos. (ticker: L) and Home Depot (HD).

“Remodelers and home-improvement suppliers benefit from a rising-rate scenario,” says Sesha Dhanyamraju, CEO of Digital Risk, a provider of outsourced mortgage processing services.

“Homeowners with a low mortgage rate are far more likely to stay in their homes and spend to improve them than pursue a new house … with a higher mortgage rate” Dhanyamraju says.

Winner: Technology

No matter how much some consumers may grumble, rising interest rates mean good news on at least one front.

“The technology sector should benefit as rising interest rates usually correlates with an economy that is getting stronger and is expected to grow at a faster pace,” says Ronen Schwartzman, founder and chief investment officer of Ten Capital Advisors in New York City.

And a strong economy could bolster the bottom lines
of smartphone manufacturers such as Apple (AAPL) and Samsung.

Loser: Government Bonds

If rates rise again soon, there could be some vulnerability for investors overexposed to certain types of bonds.

“A slight increase in rates would erase the coupon return for intermediate and long-term government bonds,” says Daniel Kern, chief investment officer of TFC Financial Management in Boston. “Investors concerned about potential rate hikes may want to emphasize shorter-term government bonds until rates stabilize.”

Meanwhile, “Dividend-paying stocks offer the appeal of income and growth,” Kern says.

Tie: Telecoms

Eric Ervin, CEO of Reality Shares, a research firm and exchange-traded-
fund provider focused on dividend-growth investing, believes that telecoms, because of their high yields, “will most likely suffer the most when with rising rates.”

Yet while this sector is sensitive to interest rate hikes, it isn’t necessarily vulnerable. In large part, any potential hurt depends on how much rates rise.

So far, so good: Over the last year, AT&T (T) is up nearly 7 percent – and 13 percent since Election Day, trading at about $24 per share.

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Insiders continue to take advantage of post-election surge in bank stocks

By Jackie Stewart

Executives and directors continue to capitalize on the post-election surge in bank stocks.

Insiders have been steadily selling shares over the last four months. For instance, insiders at 243 banks covered by Keefe, Bruyette & Woods have reduced their holdings by 103 million shares, valued at nearly $24 billion, since early November.

More than 9 million shares have been sold since Feb. 21, according to KBW data.

Many of the sales have involved insiders at smaller banks. About 80% of the stock sales since November, accounting for 56% of the proceeds, were tied to individuals and groups at banks with market capitalizations below $5 billion. KBW’s data includes transactions by private equity firms that have large bank stakes.

The moves make sense since bank stocks have jumped more than 20% since the Nov. 8 election even with the recent market pullback. While the numbers seem large, bank insiders still own a considerable amount of stock in their companies, industry experts said.

“Keep in mind they aren’t liquidating their entire portfolios,” said Christopher McGratty, a KBW analyst. “It’s only a fraction of what some of them own.”

There are several reasons insiders are cashing out a portion of their holdings. First, a surge in prices has provided a convenient window to make the most of shares that many bankers and directors may have been holding onto for years.

Also, some individuals may need to exercise stock warrants or options before they expire. They may also sell some stock to cover associated taxes, said James Cassel, chairman and co-founder at the investment bank Cassel Salpeter.

Bank insiders, like other investors, could see the increase in prices as a chance to diversify their personal portfolios. Many bankers learned that lesson the hard way during the financial crisis.

Executives with the $7.8 billion-asset Boston Private often sell stock based on personal circumstances, such as tax planning or charitable giving, regardless of market conditions, a spokesman said, adding that CEO Clayton Deutsch’s sale of 25,000 shares on Jan. 25 is consistent with his activity in recent years.

A spokesman for the $214 billion-asset BB&T said it is common for stockholders to realize gains when shares increase in value. KBW noted that King still holds about 290,000 shares of BB&T stock, which hit an all-time high earlier this year.

Ted Peters, chairman and CEO of Bluestone Financial Institutions Group, said his investment firm is generally discouraged when insiders sell. Still, Peters, a former CEO of Bryn Mawr Bank, said he realized there were many good reasons for selling.

The key for Peters is conducting more research into a seller’s motives.

“You have to look behind the scenes to see why the executive sold,” he said. “If an executive won’t stand behind their own stock, why should we?”

Insiders need to take precautions when they sell to remove any suspicion from other investors and to remove any claims of underhanded dealings. Though rare, there have been instances where individuals used material nonpublic information to trade shares.

James Cope, a former director at Pinnacle Financial Partners in Nashville, Tenn., agreed to pay a $200,000 fine and two years of probation after pleading guilty to insider trading. Cope bought shares in Avenue Financial Holdings after learning during a meeting that Pinnacle was interested in buying Avenue.

Chip MacDonald, a lawyer at Jones Day, encourages a conservative approach to insider stock sales. “When in doubt, don’t trade,” he said.

There are laws and company policies that dictate when and how insiders can divest their stock. Internal discussions over strategic decisions like negotiating a merger or planning a stock offering would usually mean an insider could not sell stock for a period to avoid using nonpublic knowledge to their benefit.

Insiders often set up plans under the Securities and Exchange Commission’s Rule 10b5-1 where a broker is designated to make buying or selling decisions based on predetermined times or prices.

“I wouldn’t read too much into [a sale] unless an entire board or management team sold their entire portfolio at one time,” MacDonald said. “If they’re maintaining a meaningful amount of stock, you can assume it’s a diversification effort as opposed to a concern about their institution or the industry.”

 

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Position your business to attract interest from private equity firms

By James S. Cassel

There comes a time in almost every middle-market business owner’s life when attracting interest from a private equity firm or strategic buyer becomes important. Private equity firms look for certain criteria when evaluating candidates for acquisitions or recapitalizations, so it is important to plan ahead and take the right steps now to put your business in the best position.

The business decisions you make today can position your company for future growth, recapitalization or sale. Following are some of the key characteristics that private equity firms most commonly look for in companies. While all private equity firms are somewhat unique and may have their own sets of criteria and preferences, the criteria listed below are a good starting point to keep in mind.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment banking firm with headquarters in Miami that works with middle-market companies. . .

▪ Good people. Having a good senior management team is important. The team should be properly trained, incentivized and moving in the same direction.

▪ Recurring revenue and margins. For some businesses, long-term contracts are a great way to guarantee future revenue streams. Other equally beneficial options might include service contracts, subscription services, membership clubs or adding lines of consumables to what you already sell. Many private equity firms look for businesses with margins of 10 percent or better.

▪ Large market potential. Market size is one of the top criteria that private equity firms look for when buying companies. A $25 million player in a $100 million market will not be as attractive to a private equity firm as a $25 million player in a $1 billion-plus market. Just as important, you should be in a market where the leaders do not control a large proportion of the industry. In some cases, niche businesses that are ancillary to other businesses can be attractive.

▪ Solid growth potential. Having a defensible market and strong growth characteristics is vital. The better your growth rate, the higher your valuation. Beyond your previous growth, your realistic projected future growth is important.

▪ Appropriate financial documentation. Proper accounting systems and financial reporting is critical. It is important to show a history of keeping all necessary documents in appropriate order. Sound and accurate record keeping will help protect your valuation when financial due diligence is being performed.

▪ Strong product and service offerings. Keeping a close pulse on changing market trends and conducting strong research and development is important. This can help you maintain a strong pipeline of new products and ensure your products or services meet the needs of your customers and prepare you for the future. Private equity firms like businesses with a low risk profile in the short term to avoid technical obsolescence.

▪ Fragmented industry. Being in an industry with M&A opportunities is always good. In addition to organic growth, growth by acquisition can be very beneficial to expanding your business.

▪ Good customers. Private equity firms look for companies that have a strong customer base with adequate distribution of customers and lack of customer concentration. If a majority of your revenues come from one or two customers, private equity firms will be concerned about what may happen to your business if those customers depart. Generally, a single customer should be responsible for no more than 10 percent of your revenues. Being the market leader, or at least among the top three in your market, is helpful.

If your business does not meet all the above criteria, do not assume that private equity firms will not be interested. Some private equity firms are open to enhancing businesses by addressing any areas that might be deficient. In today’s market, the better and bigger companies might sell for multiples in excess of 10 times EBITDA (earnings before interest, taxes, depreciation and amortization), while those with less attractive business models or industries might sell for values of five times EBITDA or less.

Achieving the goals listed above requires time and effort and may not be done overnight. By taking the right steps now, you can help position your firm to attract interest from private equity firms or strategic buyers willing to pay top dollar in the future.

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Heat Biologics Announces Agreement to Acquire Pelican Therapeutics

Acquisition brings $15.2 million CPRIT grant to fund 70-patient Phase I trial

DURHAM, N.C., March 08, 2017 (GLOBE NEWSWIRE) — Heat Biologics, Inc. (“Heat”) (Nasdaq:HTBX), a leader in the development of immunotherapies designed to activate a patient’s immune system against cancer, announced that the company has entered into a definitive agreement with the holders of 75.5% of the outstanding capital stock of Pelican Therapeutics, Inc. (“Pelican”) to acquire an 80% controlling interest in Pelican.  Headquartered in Austin, Texas, Pelican is a privately held immuno-oncology company focused on developing agonists to TNFRSF25, a highly differentiated and potentially “best-in-class” T cell costimulatory receptor.

Key highlights include:

  • Pelican was the recipient of a highly competitive $15.2 million New Company Product Development Award from the Cancer Prevention and Research Institute of Texas (CPRIT), which should enable the company to advance multiple products through preclinical development and at least one program through a 70-patient Phase 1 clinical trial.  The CPRIT grant is subject to customary CPRIT funding conditions and was awarded in 2016 following a rigorous scientific and clinical evaluation process.
  • Pelican’s T cell costimulator, PTX-25, in combination with other immunotherapies, including Heat’s ImPACT and ComPACT technologies, has the potential to enhance durability of responses due to its preferential specificity to ‘memory’ CD8+ T cells.
  • Preclinical studies demonstrate PTX-25 has superior “best-in-class” costimulatory activity for CD8+ cytotoxic T cells as compared to other costimulators.

“The acquisition of Pelican aligns with our strategic focus targeting exciting immuno-oncology combinations, strengthening Heat’s portfolio in the emerging T cell activation space,” said Jeff Wolf, Heat’s Founder and Chief Executive Officer.  “Pelican’s two product candidates are transformative assets for us as there are compelling data indicating that targeting TNFRSF25 may have significant advantages over competing costimulatory receptors currently under development.  This is important because many of the leading global pharmaceutical companies are focused on T cell costimulators to enhance the effectiveness of their existing immuno-oncology therapies.”

“Pelican’s PTX-25 has the potential to dramatically improve the durability of antigen-specific immune responses due to its preferential specificity for stimulating the production of ‘memory’ CD8+ T cells,” added Jeff Hutchins, Ph.D., Heat’s Chief Scientific Officer and Senior Vice President of Preclinical Development.  “We look forward to advancing these new product candidates with synergistic combinations including Heat’s existing T cell-activating platform technologies, ImPACT and ComPACT, vastly expanding our reach within oncology and possibly beyond.”

The acquisition is contingent upon certain closing conditions, including agreements of the holders of 80% of the outstanding capital stock of Pelican, on a fully diluted basis, to participate in the acquisition and enter into a stockholders agreement with respect to their remaining Pelican shares.  As consideration for the sale of 80% of the Pelican Stock, Heat will pay the Pelican stockholders that participate in the acquisition an upfront cash payment not to exceed $500,000 and will issue an aggregate of 1,323,021 shares of Heat common stock, representing 4.99% of the outstanding shares of Heat common stock.  In addition, Heat will cause Pelican to pay certain clinical and commercialization milestone payments, royalty and sublicensing income payments, and Heat will loan Pelican amounts sufficient to pay Pelican’s transaction expenses.  Cassel Salpeter & Co. served as financial advisor to the Heat special committee and Geller Biopharm served as financial advisor to the Pelican special committee and Pelican stockholders.

The acquisition is expected to close no later than April 30, 2017, subject to applicable regulatory approvals and other customary terms and conditions.

About Pelican Therapeutics, Inc.
Pelican Therapeutics, Inc. is a privately held immuno-oncology company focused on developing agonists to TNFRSF25, a differentiated and potentially “best-in-class” T cell costimulatory receptor. TNFRSF25 has shown great promise due to its preferential specificity for stimulating the production of “memory” CD8+ T cells, the strongest predictive biomarker of clinical benefit from cancer immunotherapy. T cell costimulatory therapy, when combined with checkpoint inhibitors and other treatments, could significantly improve clinical responses for a broader range of patients. Pelican has conducted extensive preclinical studies and completed humanization of its lead monoclonal antibody, PTX-25.

About the Cancer Prevention and Research Institute of Texas (CPRIT)
Beginning operations in 2009, CPRIT has to-date awarded $1.78 billion in grants to Texas researchers, institutions and organizations. CPRIT provides funding through its academic research, prevention, and product development research programs. Programs made possible with CPRIT funding have reached all 254 counties of the state, brought more than 123 distinguished researchers to Texas, advanced scientific and clinical knowledge, and provided more than three million life-saving education, training, prevention and early detection services to Texans. Learn more at www.cprit.texas.gov.

About Heat Biologics, Inc.
Heat Biologics, Inc. (Nasdaq:HTBX) is an immuno-oncology company developing novel therapies that are designed to activate a patient’s immune system against cancer utilizing an engineered form of gp96, a protein that activates the immune system when cells die. Heat’s highly specific T cell-stimulating therapeutic vaccine platform technologies, ImPACT and ComPACT, in combination with other therapies, such as checkpoint inhibitors, are designed to address three distinct but synergistic mechanisms of action: robust activation of CD8+ “killer” T cells (one of the human immune system’s most potent weapons against cancer); reversal of tumor-induced immune suppression; and T cell co-stimulation to further enhance patients’ immune response.  Currently, Heat is conducting a Phase 1b trial with HS-110 (viagenpumatucel-L) in combination with an anti-PD-1 checkpoint inhibitor to treat patients with non-small cell lung cancer (NSCLC) and a Phase 2 trial with HS-410 (vesigenurtacel-L) in patients with non-muscle invasive bladder cancer (NMIBC).

Heat’s wholly-owned subsidiary, Zolovax, Inc., is developing therapeutic and preventative vaccines to treat infectious diseases based on Heat’s gp96 vaccine technology, with a current focus on the development of a Zika vaccine in conjunction with the University of Miami.

For more information, please visit www.heatbio.com.

Forward Looking Statements
This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 on our current expectations and projections about future events.  In some cases, forward-looking statements can be identified by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions.  These statements are based upon current beliefs, expectations and assumptions and include statements regarding the ability of the parties to satisfy all closing conditions and consummate the Pelican transaction, and to develop Pelican’s potential products singly or in combinations with Heat’s existing product portfolio, the advantages that TNFRSF25 may have over competing costimulatory receptors currently under development, the potential of PTX-25, to enhance durability of responses due to its preferential specificity to ‘memory’ CD8+ T cells, the availability of the CPRIT grant and the potential of Heat’s ImPACT and ComPACT therapies.  These statements are based on management’s expectations and assumptions as of the date of this press release and are subject to a number of risks and uncertainties, many of which are difficult to predict that could cause actual results to differ materially from current expectations and assumptions from those set forth or implied by any forward-looking statements, including the ability of Heat to consummate the Pelican transaction and develop its product candidates and prove them safe and efficacious, as well as results that are consistent with prior results, the ability to enroll patients and complete the clinical trials on time and achieve desired results and benefits, the company’s ability to obtain regulatory approvals for commercialization of product candidates or to comply with ongoing regulatory requirements, regulatory limitations relating to the company’s  ability to promote or commercialize its product candidates for specific indications, acceptance of its product candidates in the marketplace and the successful development, marketing or sale of products, the company’s ability to maintain its license agreements, the continued maintenance and growth of its patent estate, its ability to establish and maintain collaborations, its  ability to obtain or maintain the capital or grants necessary to fund its research and development activities, and its ability to retain its key scientists or management personnel and the other factors described in the company’s annual report on Form 10-K for the year ended December 31, 2015 and other filings with the SEC.  The information in this release is provided only as of the date of this release and the company undertakes no obligation to update any forward-looking statements contained in this release based on new information, future events, or otherwise, except as required by law.

Will C&I clients make South Florida worth the risk for Iberia?

By John Reosti

Daryl Byrd knows that South Florida is one of the country’s most fickle markets. He knows that it is prone to wild swings — one year cranes are everywhere and the next it’s vacant condos as far as the eye can see.

Yet his company, Iberiabank, is making the biggest deal in its history there, betting that the attractive demographics and potential commercial clients will be worth the risk.

The $1 billion purchase of Sabadell United Bank would add nearly $6 billion in assets to Iberia, of Lafayette, La. It would more than double the size of Iberiabank’s Florida operations and meaningfully increase its exposure to the Miami area, where most of Sabadell United’s branches are located.

Banks in South Florida were hit hard by the financial crisis, especially lenders that focused on condo lending. Unemployment stayed at double digits for several years, and seven area banks failed between 2008 and 2013.

The market has bounced back strongly, with its population, employment and the overall economy growing at a rapid pace.

Those ups and downs have some industry observers conflicted about the deal.

While calling the acquisition a “very bold strategic stroke,” Joseph Fenech, an analyst at Hovde Group, also expressed “mixed emotions” about the transaction. “The deal has some intriguing aspects to it, though it’s not without its share of risk.”

Banks that conduct business around Miami should also expect added regulatory scrutiny when it comes to anti-money-laundering measures and the Bank Secrecy Act, said Ken Achenbach, a lawyer at Bryan Cave in Atlanta

who was not involved with the deal. Regulators, for instance, will want to know if Iberiabank’s compliance systems are up to snuff.

“It’s not just the balance sheet and capital adequacy that gets looked at” by regulators reviewing the merger application, Achenbach said. “Thinking about risks beyond credit … has become much more sophisticated as banking has grown in complexity.”

Iberiabank has almost certainly factored regulators’ attitudes into its preparations, Achenbach said.

Sabadell United’s foreign ownership is another wild card for regulatory review. Spain’s Banco Sabadell entered South Florida in 2007 when it acquired the $580 million-asset TransAtlantic Bank in Miami. Over the next decade it built the franchise through organic growth and acquisitions.

The deal’s pricing — valuing Sabadell United at nearly 200% of its tangible book value — was also a subject of debate. Iberiabank will also sell $500 million of common stock, on top of a $280 million offering in December, to help pay for the acquisition.

“The financial attractiveness of the deal strikes us as less compelling than the strategic aspects,” Fenech said. Iberiabank “is paying a fairly full price for economics that seem neutral — at least over the intermediate term — to the pro forma earnings profile.”

While the price is far from a bargain, Chris Marinac, an analyst at FIG Partners, said it is in line with typical transactions in Florida. He also expressed optimism for the financial modeling, which he viewed as very conservative.

Iberiabank is largely counting on cost-cutting to make its numbers work, vowing to reduce Sabadell United’s annual expenses by 27% in order to achieve 6% earning accretion next year.

The company, however, was excited about the market’s growth prospects.

“With a population of over 6 million people, the greater Miami area is a dynamic market with a strong concentration of commercial-and-industrial clients that are particularly attractive to us,” Byrd, Iberiabank’s president and CEO, said in a press release announcing the deal.

Efforts to reach Byrd for additional comment were unsuccessful.

There is upside if Iberiabank can boost revenue without disrupting Sabadell United’s culture, industry observers said.

“This gives them a real presence in an area with a growing population,” said James Cassel, chairman of the Miami investment bank Cassel Salpeter & Co., which was not involved in the deal. Iberiabank “never had much of a footprint” in South Florida, he said.

Banco Sabadell “always kept that local feel,” Cassel added. “They ran it as a community bank.”

Marinac noted that Sabadell United’s net interest margin is roughly 3%, adding that Iberiabank could make the deal “even more accretive” by simply boosting that metric by 25 basis points.

“The key is execution,” Marinac said. Iberiabank has “to retain key people and deepen the relationships it’s buying.”

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