Computed by deducting intangible assets, startup expenses, and deferred financing costs from the firms normal book value bv. Is tangible book value per share dilution an insurmountable investor fixation. 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. Tbv dilution is very important to investors, who tend to punish deals with lengthy earnback periods. Nov 30, 2015 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. Transactions that are accretive to earnings and earnings growth should. Chemicals stock is trading at a slightly higher premium, which shortens the earnback period for the deals projected 7.
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. 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 fact, the link between tbv earnback and value creation is tenuous. The crossover analysis made executives comfortable with the nearly 12% tbv dilution per share it would book as well as the 5. Tangible book value per share dilution old national bank. It carried a pricetotangible book value dilution of 7. What if the purchase price is higher than the tangible book value. One widely used but misleading metric is the dilution of tangible book value tbv that. So far this year, shares of connectone have rallied 35. Merger with north valley bancorp tri counties bank. Tangible book value per share tbvps is the value of a companys tangible assets divided by its current outstanding shares. Tension arises over from t buyers tbv dilution projections. Include conservative estimates of net income, taking into account prospective operational and financial synergies that are likely to result after the deal is finished.
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. Manageable tangible book value dilution and earnback period approximately 3. Moes can be powerful tools to quickly grow and gain efficiencies of scale, but are. Tangible book value per share dilution incurred by buyers and the time it takes to recover it. Its a sellers market in the carolinas american banker.
Book value also known as net asset value reflects the value of the companys assets minus the value of its liabilities. Tangible book value dilution earnback in years regulatory. 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. His firm independently calculates a buyers earnback period after a deal surfaces. Strengthens each companys standalone growth profile. Transactions that are accretive to earnings and earnings growth should result in higher future returns and hence ptbv multiple expansion. Tangible book value is essentially a proxy for tangible. Earnback of tangible book value dilution projected to be approximately 3. The eps accretion method generated an earnback period between eight years and 9. From our perspective, the earnback of the tangible book value dilution from the merger is occurring meaningfully faster than originally modeled. Capacity to fund future growth with a low cost, low beta deposit franchise. The bubbles represent the tangible book value dilution percentage. Most investors are familiar with the pe ratio, but fewer are comfortable with a metric like tangible book value. The different approaches to calculating tangible book value dilution in bank.
The warm reaction to the lowno premium bank deals with low tangible book value tbv dilution. The model assumes the acquirers tbv will continue to grow, but in. The median proforma total capital ratio was a healthy 12. Aug 16, 2019 acceptable tangible book value earnback period. One part of the interview surely resonated with bank investors. 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. Jan 29, 2020 from our perspective, the earnback of the tangible book value dilution from the merger is occurring meaningfully faster than originally modeled. In this segment of the motley fool s financialsfocused show, where the money is. 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.
Tbvps determines the potential value per share of a company in the event that it must liquidate its assets. Tangible book value tangible book value tbv is the value of an insurers assets minus its liabilities, excluding intangibles and goodwill. Is tangible book value per share dilution an insurmountable. Tangible book value dilution where it all comes together. Connectone bancorp cnob to acquire bancorp of new jersey. Mar 12, 2020 reasonable tangible book value dilution. Mar 28, 2016 as a result, price to tangible book value tbv became a driving metric for bank valuations and bank merger pricing. To buy or not to buy bank holding company association. This could also be a proxy for liquidation value an. Tangible book value dilution earnback in years regulatory capital leverage ratio description. Let me now give some brief highlights on our quarter before john. This limitation can be damaging for banks and thrifts whose growth.
The combined company will have a presence in seven of the ten most populous markets in the southeast. Tangible book value dilution is a way of life in larger transactions and is our. 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. 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. Cohen is right that investor sensitivity to tbvps dilution and the earnback period are relatively new. As bank executives look to add value through mergers and acquisitions. Tcfchemical merger of equals investor presentation tcf bank. 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. South state and centerstate to combine in merger of equals. 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. 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.
Jan 20, 2014 most investors are familiar with the pe ratio, but fewer are comfortable with a metric like tangible book value. In an industry where organic growth is increasingly difficult to come by. Concerns over dilution to tbv tie back to the financial crisis. 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. Berkshire hills announces acquisition of commerce bancshares. Phil and danielle discuss the importance of growth rates to judge the quality of a business. Pro forma earnings impact and tangible book value earnback. Jan 27, 2020 enhanced scale to drive growth and improve. Pricing remains the strongest in large, highgrowth, metropolitan markets.
Aug 22, 2016 is tangible book value per share dilution an insurmountable investor fixation. Connectone gets regulatory nod for bancorp of new jersey deal. Initial tangible book value per share dilution includes all estimated merger expenses. Approximately 3% dilutive to tangible book value per share at closing acceptable tangible book value earnback period. South state corp ssb presents south state and centerstate. As a result, price to tangible book value tbv became a driving metric for bank valuations and bank merger pricing. That modeling generates eps accretion in excess of 20%, a minimal tangible book value dilution and an earnback inside of a year.
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%. Provident financial services pfs will acquire sb one. 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. South state and centerstate to combine in merger of equals to. Earnback period for dilution to tangible book value. Jan 28, 2019 chemicals stock is trading at a slightly higher premium, which shortens the earnback period for the deals projected 7. May 29, 2018 it carried a priceto tangible book value dilution of 7. Tbv dilution and earnback are poor indicators of a transactions full effect. Tangible book value earnback period projected to be approximately 2. Of these 20 transactions, 14 resulted in tangible book value dilution to the acquirer, with a median tangible book value dilution of 5. 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. Estimate a pro forma net income for the combined entities. 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.
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