In a definitive agreement announced yesterday, Berkshire Hills Bancorp Inc. (BHLB, Financial) acquired Needham, Massachusetts-based Firestone Financial Corp. as an operating subsidiary for approximately $53 million.
The deal adds the 50-year-old secured installment loan financing company to Berkshire’s expanding line of commercial lending businesses. Most of Firestone’s revenue comes from financing fitness equipment, carnival rides and games and other related equipment for small and medium enterprises. As of March 31, 2015, it had an outstanding debt of approximately $190 million, while net income went from $1.9 million in 2011 to $4.6 million in 2014.
“Firestone is a terrific fit for Berkshire Bank,” stated Berkshire CEO Michael Daly in a company release. “The strength of the management team and their conservative approach to credit has made them a solid performing finance company. Our strategic decision to complement our strong asset based lending platform with this commercial lending business enables us to further diversify our assets while expanding our client offerings. We look forward to adding Firestone’s expertise to our organization, and taking advantage of the synergies available through this acquisition.” While George Bacigalupo, Berkshire’s EVP Commercial Banking, added, “We are pleased to expand our commercial platform with this attractive acquisition. The addition of Firestone enhances both the geographic and categorical diversification of our loan portfolio while providing a valuable additional growth channel for us. The business will continue to be run by Firestone’s talented management team and their experience and conservative relationship-based approach makes this a great fit for our organization.”
Terms of the deal
The consideration will be paid 75% in BHLB common stock and 25% in cash, and the transaction is expected to be $0.08 dilutive to Berkshire’s tangible book value per share. The transaction price represents a 130% premium over Firestone’s tangible book value and is expected to be accretive to Berkshire’s 2016 EPS and generate over 15% return on equity.
Future projections
Berkshire has led the commercial lending business boom in Massachusetts over recent years. The company’s total commercial lending business has more than doubled in the past three years. Analysts call this acquisition a great move as it helps the banking business expand into a previously unexplored vertical and create a solid presence from the word go. As an underfollowed regional bank, higher rates will improve returns from low duration sources of higher yields, hence, putting them in a position to pay out higher premiums and distributions.
Market position
The common stock of Berkshire bank fell 0.86% during trading in New York on Friday to close at $27.58. The stock has grown almost 75% in the last 52 weeks, with a High of $29.30 and a Low of $22.25. It carries a P/E Ratio of 15.76 and promises earnings per share of $1.75. Current yield rate is 2.73%. Other New York listed competitor, New York Community Bancorp Inc. (NYCB, Financial), also saw a red day at the market with a 0.02 point drop in share price.
Analyst forecast earnings increase for Berkshire Hills of 12.78% in his fiscal over the last, according to Zacks Investment Research. While next year the banking corporation is expected to make a 12.56% more earnings over this year’s forecast. Analysts Jefferies & Co and Keefe Bruyette, polled by Zacks Investment Research, give the bank’s stock a unanimous "Hold" rating.
