Anticipating the hike in interest rates: A little planning can have benefits

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By James S. Cassel
October 20, 2013

James S. Cassell

James S. Cassell

Now that the government is back in business, it’s time to think about interest rates. With interest rates having recently begun to rise and currently expected to climb higher than today’s historically low rates, it’s important for middle-market business owners to begin planning and preparing for the likely impacts on their businesses and finding ways to lock down the most favorable long-term rates. A little strategic action now can go a long way to help put their companies in the best-possible financial position.

Many business owners do not understand all of the potential impacts that rising rates may have on their businesses, including affecting their profitability and value, and how serious the impacts can be. Higher interest rates mean higher costs for borrowing money and financing equipment. They affect almost everything, including the interest rates charged on lines of credit that have floating rates as well as both the interest rates and the coverage ratios that affect the ability to refinance term loans when they become due.

Interest rates also can have significant impacts on the valuations of businesses. Although rising interest rates won’t affect Earnings Before Interest and Taxes, they will have an impact on business cash flow. Most significantly, however, they can affect potential buyers of businesses, as they will probably have to pay higher interest rates when they borrow money to the leverage their purchases of businesses. This may cause valuation gaps or discourage them from making the acquisitions. In a nutshell, the higher interest rates affect debt service coverage ratios. The higher the interest rates, the lower the amounts that may be borrowed. As a result, there’s a good possibility that business valuations will be affected as interest rates rise.

With all this considered, now is a good time to begin taking steps to ensure that you can secure the lowest-possible interest rates for your business over the long term. How should you go about this? Some strategies:

•  Take advantage of today’s historically low rates. If you’re planning to take out any new loans or can renegotiate existing ones, there’s no time like the present. Aim to lock in long-term rates or hedge the rates whenever possible.

•  Get liquid. Use your excess cash flow now to pay down as much of your debt as possible, provided you do not see a need in the foreseeable future to borrow the money back.

•  Get creative. Approach different lenders, such as trying community banks rather than national banks. Both have their pros and cons, but it might be in your best interest to work with a smaller lender that’s hungrier and more flexible for your business in order to lock in lower rates and more favorable terms.

•  If you choose to expand your business credit line, owner-occupied real estate loan or any other type of loan, use your newly found capital wisely to penetrate new markets and invest in the right people, technologies, equipment and other resources to support your business.

•  Government programs like SBA-type programs might offer lower fixed rates that are more favorable. Although it’s not always a good idea to put up your house as collateral for your business loans, if you do find yourself in the position of having to do this, you should consider locking in those interest rates for the longest-possible terms.

•  Keep in mind that some loans that are based on using cash flow as collateral might be good, less expensive options if you can provide acceptable collateral. You might consider converting some of your loans and/or changing lenders to take advantage of better terms offered by different lenders. Be careful when getting unsecured loans: Giving up the collateral is not always ideal.

•  Consider specialty lenders. Look for lenders who specialize in specific areas, as they may help you secure better terms. If you can pit multiple lenders in a bidding war against each other, you probably can get better deals.

In addition to ensuring that you are borrowing money at the most favorable long-term rates, it’s always a good idea to consult qualified, trusted advisors, such as attorneys, investment bankers and CPAs. By doing some smart planning now and taking the right strategic steps, you can strengthen your business and put it in the best position for both the short and long term.

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. www.casselsalpeter.com

 

Top 12 Tips to Get the Most Value from the Sale of Your Middle-Market Business

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By James Cassel
October 17, 2013

A little planning can go a long way toward helping you to obtain the maximum value for your business. The sooner you begin, the better.

Throughout my career in leading the sales and purchases of middle-market businesses nationwide, I’ve found the following 12 tips to be the most helpful for business owners planning to sell. The further in advance of the sale that these recommendations are implemented, the greater the value that can be created. They’re also generally good business practice for anyone in business.

  1. Make sure that your financial and accounting records are in order so that you can readily give potential buyers a clear, accurate snapshot of your historical financial results and condition. This is critical to ensuring that you get top value for your business. It’s also a good idea to prepare a budget and maybe get audited financials.
  2. Review and/or restructure your agreements with customers as necessary. Do your contracts have special terms, such as change of control provisions or requirements that you personally provide services, that may affect the longevity of the contracts when you’re no longer involved with the business?
  3. Review and, if necessary, restructure your leases. Often, long-term leases for excess space and high rates can be roadblocks to completing deals, while the opposite is true for long-term leases at favorable or below-market rates. Do you have a long-term lease that new buyers will have to continue or any special clauses that will create issues for potential buyers?
  4. Review and/or restructure agreements with your suppliers. As in #2 and #3 above, you should determine whether you’re locked into agreements that may not appeal to potential new buyers or reduce value. Now would be a good time to try to modify or terminate any agreements that you don’t consider favorable to avoid turning off potential buyers.
  5. Review your insurance coverage. Consult a trusted insurance agent to evaluate your current coverage and fill any gaps that may exist. For example, depending on your business, liability coverage and tail coverage might be critical.
  6. Do your personal tax and estate planning. Consult with qualified lawyers and accountants to ensure that you have structured your ownership in the most tax-advantaged way in the event of a sale. Doing this now vs. just before a sale can be very advantageous.
  7. If you have a family-owned business, talk with your family. Make sure that your family members and other key stakeholders fully understand the possible impacts of the business sale on everyone involved. Especially if your family members either work at or are dependent on your business, it’s critical to have their buy-in.
  8. Evaluate your intellectual property. Work with qualified attorneys to make sure that it’s well protected and owned or licensed by the right entities. Also, make sure that you have proper licenses for all of the software you use.
  9. Evaluate management. Ensure that you have appropriate management in place and that there are no gaps that you should fill before you put your business on the market. Also, examine your employment agreements to ensure that you have the necessary noncompete, confidentiality, and other provisions.
  10. Determine whether there are environmental issues. Either remediate them or at least develop an accurate understanding of what will be required to do so.
  11. Get organized. This gives a good impression and strong comfort level to potential buyers, which is a priceless intangible.
  12. Hire an effective public relations and marketing firm. Positive news coverage in credible media outlets that reach potential buyers as well as current and potential customers can help to elevate firm and brand awareness, secure credibility for your business, and even generate inquiries from potential buyers. Depending on the nature of your business, social media might be an appropriate tool to leverage as well.

Without a doubt, the tips listed above are general good business practice, even if you’re not thinking of selling yet. The key is to work with qualified advisors, including attorneys, accountants, and investment bankers, who can give you the strategic counsel and guidance you need to put your business in the best possible position. It is a good idea to assemble the team far in advance of a contemplated sale. By minimizing the weaknesses and playing up your strengths now, you can help to ensure that you get the best value for your business whenever you’re ready to sell.

LOLJames Cassel (jcassel@casselsalpeter.com) is cofounder and chairman of Cassel Salpeter & Co., LLC (www.casselsalpeter.com), an investment banking firm with headquarters in Miami that works with middle-market companies. Before founding Cassel Salpeter & Co., Jim was co-founder and chairman of Capitalink, an investment banking firm that was acquired by Ladenburg Thalmann & Co., a New York Stock Exchange member firm where Jim continued and served as vice chairman, senior managing director, and head of investment banking. He also was chairman of a significant company that owned hospitals.

Yellen appointment at the Fed seen as a positive for startups

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By: Kent Bernhard Jr
October 09, 2013

The UpTake: Janet Yellen isn’t expected to change the Federal Reserve’s easy money policies much, and experts say that’s good for the upstart economy.

Janet Yellen brings arguably more expertise and experience to the job of Federal Reserve chairman than anyone before her. But what does her appointment mean to the upstart economy?

“My big picture view is that stability and the Fed’s recent accommodative policies are good for the startup ecosystem,” said Stash Jacobs, an attorney with Miami-based Greenberg Traurig who works on mergers and acquisitions and funding deals for startups.

President Barack Obama nominated Yellen today to the post being vacated by Ben Bernanke. The first woman appointed to the most powerful economic post in the world, she comes to the job with a wealth of experience.

Most recently, she has served as the Fed’s vice chairman. She has held previous posts as head of the San Francisco Federal Reserve Bank and the Council of Economic Advisors.

If the Senate confirms her, she will take over at a time of continued economic duress, with the Fed pumping money into the economy through low short-term interest rates and a mechanism called quantitative easing to try and stimulate the economy and ease unemployment.

Don’t look for that to change, at least in the near future, and that’s a good thing for startups and entrepreneurs.

That’s because the Fed’s easy money policy drives down the attractiveness of such traditional investments as CDs and bonds, leading more money to enter the stock market—good for companies like Twitter that are going public—and even to direct investments by institutional investors in venture capital funds, the feeder system for startup investment.

Such investments as venture capital are more attractive, if riskier, because they offer a higher rate of return than traditional investment vehicles, especially at a time of low interest rates.

“When IPOs are happening, that’s great for startup companies because it builds confidence,” Jacobs told me. And with other investments perhaps less attractive, “It can cause investors to be interested in venture capital and early stage investing as well.”

James Cassel, co-founder of investment bank Cassel Salpeter, said the Fed’s policies could also have a more direct impact on entrepreneurs and would-be entrepreneurs. The lower interest rate policies of the Fed have a positive effect on the housing market, which can encourage someone thinking of entrepreneurship to take the leap into it.

“If the fed can encourage growth and keep down inflation, it can be good for the ecosystem,” Cassel told me. “You’re willing to invest…or take that business risk of starting a company without getting paid for a while.”

 

 

 

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Lower Middle-Market M&A Expected to Pick Up; Cash ‘Not Being Lent Stupidly’

October, 07, 2013
By David Holley

Click the article and image below to expand it and view it in PDF format. James Cassel’s Q&A can be found on page 7.

Click the article and image below to expand it and view it in PDF format:

 

Florida Bank’s Effort to Make Itself ‘Pristine’ Pays Off

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By Robert Barba
August 8, 2013

John Tranter knew he had a rare gem. But no one was shopping for gems during the financial crisis, so he decided his time was best spent really polishing it up.

The move paid off. In the week since his bank, Gulfstream Bancshares, announced it would sell itself for $77 million to CenterState Banks (CSFL), the transaction has been the buzz of their home state of Florida.

CenterState’s stock has risen 10% since the announcement. Meanwhile, the deal price of nearly 1.5 times Gulfstream’s tangible book value has probably renewed the M&A hopes of sound banks in the Southeast that, like Gulfstream, kept getting passed over as buyers sought bargains for the dented, damaged and distressed.

“To me, this is truly the first healthy-bank deal in Florida in five or six years, where you have a healthy buyer buying a healthy target — and they are paying a decent premium for it,” says Brady Gailey, an analyst at Keefe, Bruyette & Woods. “There are a lot of small, healthy banks in Florida, but I think they and the buyers have been skeptical about trying to get out and do a deal. With the market rewarding this deal the way it is, I think it could lead to more healthy-bank M&A in Florida.”

With credit quality being the banner issue in Florida, one of Stuart-based Gulfstream’s most distinct features is its asset quality. At the end of the first quarter, noncurrent loans made up 1.12% of the bank’s total loans. While the state’s 203 banks had an average noncurrent ratio of 5.32%, 54 banks had a ratio equal to or less than 1.5%, according to data from BankDATAWORKS, a Chicago bank-analytics firm.

Gulfstream sought to be a rebel from its inception. Tranter said that he and his colleagues are mostly former Barnett Bank employees, but as Gulfstream was forming in 1998 they made a concerted effort to be different.

“Barnett was all things to all people, but as we were putting the concept together I thought you probably have a better chance of long-term profitability by focusing on a few things,” Tranter says. “It took longer to grow and took more focus, but it was great once we got critical mass.”

The bank focuses on small businesses, entrepreneurs, professional businesses and affluent investors. The $572 million-asset company’s loan portfolio is 27% commercial and industrial, and 75% of its commercial real estate is owner-occupied.

Meanwhile, nearly 40% of its deposits are demand accounts. That percentage “is high in any market,” says Michael Rose, an analyst at Raymond James, the investment bank that is representing Davenport-based Center State in the deal. “That is approaching Texas bank levels.”

The decision to sell was largely based on a desire to have liquidity, Tranter says. “We are 15 years old, and the traditional de novo tends to do a liquidity event much sooner than that,” Tranter says.

M&A in Florida was hot in the years before the downturn, but Tranter says he was busy focusing on expanding south into Palm Beach County, not selling the bank. Then the downturn hit, and nearly 70 banks failed in Florida. Even though the pace of failures has slowed considerably, last week regulators seized a bank in Florida. Traditional M&A all but dried up, largely because of skepticism about credit marks.

“It was like trying to catch a falling knife,” says Jim Cassel of Cassel Salpeter, an investment bank in Miami.

Unable to control the larger economy, Tranter says he decided to get the bank in the best shape it could. It increased its loss allowance for noncurrent loans to at least 200%, and it aimed to build its capital ratios to twice the regulatory minimums for well-capitalized institutions through retained earnings. If it could clear up any questions surrounding

capital and credit, his theory went, potential buyers could focus on strengths like its average deposits of $120 million at its four branches.

“We wanted our metrics to be pristine,” Tranter says. “My goal was to have a deliverable book that was visible. Our earnings visibility is as good as ever. A buyer wouldn’t have to mess around with provision or our efficiency.”

Scott Salpeter, President at Cassel Salpeter & Co., LLC

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By admin 
August 15, 2013
 
 ss

IBISWorld caught up with Scott Salpeter, President at Cassel Salpeter & Co., LLC , to find out firsthand what’s going on with the investment banking industry.

IW: What challenge do you and your company face right now?

SS: Keeping up with the speed of knowledge creation and information dissemination across a broad range of industries.

IW: How does IBISWorld help you overcome this challenge?

SS: IBISWorld is an important tool in providing timely, useful and concise data and information for our analysts to quickly come up to speed on a subject.

IW: What do you foresee happening in your industry within the next year?

SS: Investment banking, like most service professions, continues to become more crowded and it has become harder to differentiate oneself.

IW: Tell us something interesting about yourself:

SS: You may be surprised to learn that I am an avid hockey fan and Florida Panther season ticketholder since day one of the franchise.   

Cassel Salpeter & Co., LLC is a middle market investment banking firm focused on providing independent and objective advice to middle market and emerging growth companies.  Thier investment banking and advisory services include broad capabilities for both private and public companies, including: mergers and acquisitions; restructurings, including 363 sales and plans of reorganization; equity and debt capital raises; fairness and solvency opinions; valuations; and financial and strategic advisory.

Their senior partners are personally involved at every stage of all assignments.  Their success is based on unbiased advice, understanding each client’s business objectives, providing value added services, and our extensive relationships and expertise.  They have forged relationships and executed transactions, both nationally and internationally.

Headquartered in Miami, Florida, Cassel Salpeter is led by James Cassel and Scott Salpeter.  Member FINRA and SIPC.

Banking on U.S Growth

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By: Rochelle Broder-Singer
August 2013

CS-Florida Trend-Banking on U.S growth-Media clip-August 2013

James Cassel: The middle-market is important, under appreciated

By James Cassel
July 14, 2013

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The middle market is the principal driver of our labor market and economy, but it’s also the most misunderstood and least appreciated. Like it or not, it’s time for everyone to brush up on their understanding of this important business segment and certain key issues surrounding it.

Many fail to appreciate the significance or economic impacts of the middle market because the vague term “middle market” means different things to different people. Some say that companies with $5 million to $500 million in annual revenues are middle market, while others say companies with $50 million to $1 billion in revenues are middle market. Others define it based on the values of the businesses rather than their revenues. Based on our experience at Cassel Salpeter, an investment banking firm specializing in the middle market, we define it as any business with $10 million to $250 million in enterprise values. We do not base it on revenues. No matter what method or range you prefer to use, the numbers confirm that the middle market deserves our attention as it is the great economic driver of our economy.

Simply put, the middle market affects us all. If you’re a small company, middle-market businesses are probably among your most important customers. If you’re a large company, middle-market businesses are either your key vendors or constitute a large share of your customer base. They also supply many goods and services to consumers.

Middle-market businesses create more jobs than small and large businesses. In Florida, middle-market companies boosted employment almost nine percent and accounted for 45 percent of all jobs created in the state during the past year, according to the National Center for the Middle Market. A recent analysis of BLS data by Forbes shows that U.S. businesses with 50 to 1,000 employees created 1.8 million jobs nationwide between March 2011 and March 2012. These jobs accounted for more than half of all new jobs in the country and more than five times the number created by companies with more than 1,000 employees. This will only increase as confidence in the economy continues to grow.

In Florida in particular, the middle market is also important because it is a key driver for the state’s private equity investment market. In 2012, Florida ranked fourth nationwide in the number of private equity investments made, according to the Private Equity Growth Capital Council. Private equity firms invested $17.3 billion in 115 Florida-based companies last year, the data show.

When it comes to mergers and acquisitions activity, the middle market clearly takes the lion’s share in the United States in terms of number of transactions. This is often overshadowed by the headline-grabbing mega deals. Considering all these trends, we can expect private equity activity to increase throughout the balance of this year. The uptick in the economy will motivate buyers to look for high-quality businesses where they can invest their capital. Moreover, many private equity funds have legacy middle-market investments that might be ripe to liquidate with the improvement in the economy.

As the U.S. continues its path toward economic growth, middle-market businesses — particularly those in manufacturing, food and beverage, consumer products, financial services, healthcare, technology and new media — are likely to experience continued growth.

How do middle-market businesses attain this success? Simply put, they combine the best of both worlds. They enjoy the benefits of smaller companies (nimble, flexible, low operational costs, etc.) and those of larger companies (experienced senior leadership, proven track records, financial stability, deep market penetration, etc.).

Middle-market businesses are also entrepreneurial and often family owned. A recent survey from Deloitte Growth Enterprise Services shows that mid-market companies that identify themselves as entrepreneurial get almost 40 percent more capital investment, almost 60 percent more employee productivity and almost 50 percent higher profit margins.

What does this mean for business owners in South Florida? OPPORTUNITY. Some things to consider as you look toward the remainder of 2013:

How strong is your relationship with middle-market businesses, and how well-positioned is your business to seize new opportunities to partner with middle-market companies?

How should you modify your product or service offerings to meet the emerging needs and growth segments of middle-market businesses?

Should you consider marketing to new customers or clients within the middle market?

How can you position your small business to join the ranks of the larger, more established middle market?

As the economy continues to grow and opportunities continue to emerge, owners of small, medium and large businesses who take the time to understand, embrace and support the middle market will gain a significant competitive advantage.

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. www.casselsalpeter.com

Jim Cassel: Remember your priorities when selling your business

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By: James Cassel
June 16, 2013

Thinking about selling your business? Think first about your employees, customers or clients, and lenders. Many business owners don’t give these key constituents the upfront attention they need as they begin to position their businesses for sale, and they miss opportunities to derive the greatest values for their businesses and reduce the potential for problems.

Fact is, planning will enable you to avoid issues that are likely to arise as potential buyers evaluate considerations related to these stakeholders, who they may consider critical to the long-term success of the business. Here are some helpful considerations for middle-market business owners interested in successfully positioning their businesses for sale:

Employees. Although employees can be a major asset during the sale process, they can be a great cause of substantial angst as companies position themselves for sale. Potential buyers believe that employees are important assets playing a vital role in the long-term success of businesses. For this reason, it is important for business owners to plan ahead and consider:

At what point should we inform our employees of a possible sale?

What members of the leadership team should be informed and how early in the process?

In addition to a strong executive management team, do we have an effective middle-management team to help ensure a seamless transition when the business is sold? How should we portray this to potential buyers?

What new contracts should we put in place to help ensure that key employees stay with the company? Should they include stay bonuses?

What current employee contracts should be amended or terminated?

Do we have in place the non-compete, confidentiality and other agreements that are necessary to protect our company’s intellectual property, proprietary information and client roster?

Does our company have strong employee morale and loyalty and should we take any steps now to improve these areas to further strengthen the business?

What messages should we be sending to employees, and how?

What steps would we take if the word gets out before we had planned?

Should we be concerned about a mass exodus of employees if they hear rumors that the company will be positioned for sale, and what message should we begin sending now to employees related to the future of the company and their careers here?

Should we give bonuses to employees after the sale to thank them for their loyalty? Keep in mind that planning ahead can enable the company to pay these in the most tax advantaged way. Former City National Bank president Leonard Abess, Jr., made headlines as “the role model for corporate responsibility” when he doled out $60 million of his own money in bonuses to 471 employees and retirees, including everything from clerical staff members to executives, following the $927 million sale of the bank. 

Customers or clients. Potential buyers want to see that earnings are sustainable or growing and that the customer base is diverse enough to minimize the risk of losing customers who would flee along with the founders. Moreover, as potential buyers evaluate businesses, they consider not only revenues from customers or clients but also the types of clients and the nature of the client relationships. Some of them may know your clients and approach them to get their insights as part of their due-diligence, which can cause problems. Key considerations for business owners include:

Do we have the necessary contracts in place, or should we amend the agreements with terms that are more desirable to potential buyers? Are there change of control provisions?

Are most of our customers or clients happy and satisfied?

What percentage do we expect will continue doing business with us after the company is sold and what steps should we take now to help increase that number?

What percentage of our clients currently renew their agreements? What is the average longevity of contracts?

What types of changes in our current structure, such as A-level clients we should consider cultivating or C-level clients we should consider terminating, in order to better position the business?

What messages should we be sending clients as we position the business for sale?

How and when do we inform key customers of our plans to sell?

What do we do if the potential buyer wants to speak with our customers as part of the due diligence?

How do we respond when rumors get out about a possible sale?

How do we deal with customer concentration?

In the sale process, what do we do if a current customer wants to buy our business?

Lenders. It’s important to check relationships with your lenders and determine:

Can our existing loans be transferred to the new owners? Are there any terms in our existing loans that should be addressed before we can sell the business?

Are our loans in good standing? Are we in compliance with all of the covenants and conditions?

Are there prepayment penalties?

What loan modifications could help strengthen the business?

Are there any terms in our existing loans that could hinder a sale, and how should we address these issues? Are there change of control or due on sale provisions?

What collateral does the lender have?

Without doubt, in today’s competitive market, buyers are more skeptical and analyzing businesses more closely than ever. There is much that can be done to prepare for a sale and ensure a smoother process. Those who work with qualified advisors and plan ahead by considering their employees, customers and lenders are more likely to maximize the value of their businesses and minimize the number of headaches.

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. www.casselsalpeter.com

 

For City National, it’s Chile in Miami

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By Lindsey White
May 29, 2013

Bankia’s City National Bank of Florida franchise drew a great deal of buyer interest, months of speculation and ultimately a Chilean buyer eager to expand in the Miami market.

On May 24 Chile-based Banco de Credito e Inversiones SA, or Bci, announced plans to acquire Miami-based City National in a deal valued at $882.8 million.

During the past six months, several names emerged as potential suitors for City National. While many observers had speculated that a Latin American buyer was likely, Bci garnered less attention than companies like Brazil’sBanco do Brasil SA.

“This bank kind of emerged at the last hour,” Paula Johannsen, a managing director at Monroe Securities, said of Bci.

Bankia disclosed that, after initial contact with 31 entities, it received expressions of interest from 13 financial institutions that led to six nonbinding offers. The final negotiations revolved around three entities.

Observers say the Chilean buyer got a good deal. “I think they got an excellent franchise for the price that they paid,” said Thomas Rudkin, a managing director at Syndicated Capital Inc.

The price is less than the $927.0 million that Bankia’s Caja Madrid paid for an 83% stake in City National Bancshares Inc. in 2008. “This has proven that when City National’s Spanish parent bought the bank, they overpaid for it,” said James Cassel, chairman and co-founder of Miami-based investment banking firm Cassel Salpeter & Co. On the other hand, he said Bci is paying a fair price.

A press release from City National noted the deal carries a 1.5x book value, and a company spokesman later clarified that the ratio was based on tangible book value. Johannsen said that while 1.5x book would be on the low side in some geographies, in Florida that pricing is “definitely on the high side.”

This could be due to the scarcity of franchises with size and scale comparable to City National in Florida. The bank has $4.7 billion in assets, $3.5 billion in deposits and $2.5 billion in loans.

“If you look in South Florida, there are very few banks even near this size that are available,” Cassel said.

Raymond James analyst Michael Rose notes that there are only 19 Florida-based banks with more than $1 billion in assets. “[T]he scarcity value of those franchises with greater than $1 billion in assets will only increase on the heels of the CNB acquisition in our view,” Rose wrote in a May 28 report. “While predicting the timing can be difficult, we anticipate that the pace of M&A in Florida will increase in the short to intermediate term given increased regulatory burden and the still-challenged earnings outlook for many smaller banks despite an improving economic backdrop.”

Banco de Credito e Inversiones is the third-largest bank in Chile with total assets of over $38 billion. The City National transaction is part of Bci’s effort to expand its international operations by increasing its presence in South Florida, where it has had a branch since 1999.

Several factors drove Bci’s desire to expand in the Miami market. For starters, the city has a fast-growing population (up 11% between 2000 and 2010) that is 65% Hispanic, according to a company release.

Margins also attracted Bci to the deal: The Chilean bank said that net interest margins are 3.6% for banks based in Miami, compared to 3.2% in Chile.

The Miami economy presents Bci with a big potential for growth: The company said that Miami’s GDP is about $263 billion compared to a GDP of about $268 billion for Chile.

With the acquisition, Bci aims to diversify its sources of income and its loan portfolio, create cross-sell opportunities and capture the benefits of the business flow between Miami and Latin America. In a news release, Bci CEO Lionel Olavarría called the deal the next natural step in the Miami market. “[City National] is a bank prepared to benefit from the ongoing recovery in the U.S. economy,” Olavarría said.

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U.S. bank acquisitions with a Latin American buyer are few and far between. SNL Financial found just five such deals since 2000, including the City National sale. In two of these deals the buyer was based in Venezuela, while one was based in Mexico, one in Brazil, and one, Bci, was based in Chile. The targets in three of these deals were based in Florida.

Going forward, Johannsen thinks that the Miami market could see more Latin American players coming to the table, especially given how much interest the City National deal generated. “A few years ago it was the Spanish and some of the European-type banks,” she said. “Now we’re looking to South America.”