Transactions that are accretive to earnings and earnings growth should result in higher future returns and hence ptbv multiple expansion. Earnback of tangible book value dilution projected to be approximately 3. Connectone gets regulatory nod for bancorp of new jersey deal. Terry maltese, president and ceo of maltese capital management llc, said he understands why some people like the crossover method, but believes the cleaner argument is to take tangible book value dilution and divide it by the earnings accretion. Computed by deducting intangible assets, startup expenses, and deferred financing costs from the firms normal book value bv. Assets such as property and equipment are considered to be tangible assets. Chemicals stock is trading at a slightly higher premium, which shortens the earnback period for the deals projected 7. The organization will have locations in 10 of the 15 fastest growing metropolitan statistical areas msas in the southeast and will have a pro forma depositweighted population growth of 6%.
Tangible book value per share dilution incurred by buyers and the time it takes to recover it. In this segment of the motley fool s financialsfocused show, where the money is. As a result, price to tangible book value tbv became a driving metric for bank valuations and bank merger pricing. The combined company will have a presence in seven of the ten most populous markets in the southeast. Jan 23, 2019 the deal is projected to be 7% dilutive to tangible book value, but that dilution is expected to be earned back in less than 2. In an industry where organic growth is increasingly difficult to come by.
His firm independently calculates a buyers earnback period after a deal surfaces. One widely used but misleading metric is the dilution of tangible book value tbv that. Bank observers note that tbv became the preferred measure of a banks worth during the great recession, when investors shifted their focus away from other metrics like pricetoearnings because of earnings volatility. Tbvps determines the potential value per share of a company in the event that it must liquidate its assets. What if the purchase price is higher than the tangible book value. Tangible book value dilution is a way of life in larger transactions and is our. In fact, the link between tbv earnback and value creation is tenuous. Tbv dilution is very important to investors, who tend to punish deals with lengthy earnback periods. Moes can be powerful tools to quickly grow and gain efficiencies of scale, but are. May 29, 2018 it carried a priceto tangible book value dilution of 7. Tbvps dilution could be recovered faster than today when returns are on the order of 10%. The median proforma total capital ratio was a healthy 12.
Transactions that are accretive to earnings and earnings growth should. To buy or not to buy bank holding company association. Cohen called investor fixation on tbvps dilution a new problem and observed that it is hard to pay a price that investors demand and keep the earnback period within five years. Tcfchemical merger of equals investor presentation tcf bank.
It carried a pricetotangible book value dilution of 7. Tbv dilution and earnback are poor indicators of a transactions full effect. As bank executives look to add value through mergers and acquisitions. Mar 28, 2016 as a result, price to tangible book value tbv became a driving metric for bank valuations and bank merger pricing. Is tangible book value per share dilution an insurmountable. Equity, or book value per share, is also an excellent indicator of the longterm growth of what warren buffett calls intrinsic value and what i call the sticker price. South state and centerstate to combine in merger of equals to. This limitation can be damaging for banks and thrifts whose growth.
Berkshire hills announces acquisition of commerce bancshares. Fully earning back the transactions tbv dilution is sufficient, but not necessary, to create value since the bank will trade at a higher multiple of its diluted tbv. Of these 20 transactions, 14 resulted in tangible book value dilution to the acquirer, with a median tangible book value dilution of 5. Concerns over dilution to tbv tie back to the financial crisis. The transaction is expected to generate midsingle digit earnings per share accretion in the first full year after closing, an internal rate of return of more than 20%, minimal tangible book value per common share dilution and an earnback period of less than three years. Is tangible book value per share dilution an insurmountable investor fixation. Estimate a pro forma net income for the combined entities. From our perspective, the earnback of the tangible book value dilution from the merger is occurring meaningfully faster than originally modeled.
South state and centerstate to combine in merger of equals. Jan 28, 2020 that modeling generates eps accretion in excess of 20%, a minimal tangible book value dilution and an earnback inside of a year. Mar 12, 2020 reasonable tangible book value dilution. Jan 20, 2014 most investors are familiar with the pe ratio, but fewer are comfortable with a metric like tangible book value. A tangible book value per share tbvps is a method of valuing a company on a pershare basis by measuring its equity after removing any intangible. The deal is projected to be 7% dilutive to tangible book value, but that dilution is expected to be earned back in less than 2. The model assumes the acquirers tbv will continue to grow, but in. This could also be a proxy for liquidation value an. Tangible book value is essentially a proxy for tangible. Hence, equity alone isnt nearly as revealing as equity growth rate, which is why we focus more on the growth rate than on the numbers from which we derive the growth. Jan 28, 2019 chemicals stock is trading at a slightly higher premium, which shortens the earnback period for the deals projected 7. Book value also known as net asset value reflects the value of the companys assets minus the value of its liabilities. Cohen is right that investor sensitivity to tbvps dilution and the earnback period are relatively new.
Tangible book value earnback period projected to be approximately 2. Let me now give some brief highlights on our quarter before john. Aug 16, 2019 acceptable tangible book value earnback period. The warm reaction to the lowno premium bank deals with low tangible book value tbv dilution. Manageable tangible book value dilution and earnback period approximately 3. South state corp ssb presents south state and centerstate. Tangible book value dilution earnback in years regulatory. From one perspective, it could be seen as the underlying value of a company, whereas the market capitalisation value is dictated by the supply and demand of shares. Tangible book value tangible book value tbv is the value of an insurers assets minus its liabilities, excluding intangibles and goodwill. Initial tangible book value per share dilution includes all estimated merger expenses. Earnback period for dilution to tangible book value. The transaction is expected to generate midsingle digit earnings per share accretion in the first full year after closing, an internal rate of return of more than 20%, minimal tangible book value.
The bubbles represent the tangible book value dilution percentage. Tangible book value per share dilution old national bank. Tangible book value dilution earnback in years regulatory capital leverage ratio description. Jan 29, 2020 from our perspective, the earnback of the tangible book value dilution from the merger is occurring meaningfully faster than originally modeled. Provident financial services pfs will acquire sb one. Tangible book value dilution where it all comes together. Phil and danielle discuss the importance of growth rates to judge the quality of a business. Jan 27, 2020 enhanced scale to drive growth and improve. The different approaches to calculating tangible book value dilution in bank. These forwardlooking statements include, among others, our expectations regarding the impact of the foregoing transaction to earnings per share, return on equity, return on assets, dilution to tangible book value, internal rates of return and the projected earnback. A tangible book value per share tbvps is a method of valuing a company on a pershare basis by measuring its equity after removing any intangible assets. Approximately 3% dilutive to tangible book value per share at closing acceptable tangible book value earnback period.
Connectone bancorp cnob to acquire bancorp of new jersey. Tangible book value per share tbvps is the value of a companys tangible assets divided by its current outstanding shares. Include conservative estimates of net income, taking into account prospective operational and financial synergies that are likely to result after the deal is finished. Pro forma earnings impact and tangible book value earnback. Pricing remains the strongest in large, highgrowth, metropolitan markets. Most investors are familiar with the pe ratio, but fewer are comfortable with a metric like tangible book value. The transaction is projected to deliver in excess of 20% eps accretion to south state once cost saves are fully phased in, with minimal tangible book value dilution and a tbvps earnback period of less than one year. One part of the interview surely resonated with bank investors. The crossover analysis made executives comfortable with the nearly 12% tbv dilution per share it would book as well as the 5. That modeling generates eps accretion in excess of 20%, a minimal tangible book value dilution and an earnback inside of a year. The eps accretion method generated an earnback period between eight years and 9. Merger with north valley bancorp tri counties bank. Its a sellers market in the carolinas american banker. Tension arises over from t buyers tbv dilution projections.
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