In a surprise transaction valued at $738 million, People”™s United Financial Inc. is acquiring Financial Federal Corp., a New York City-based company that focuses on equipment lending to the construction, transportation and waste industries.
It was the second major acquisition for People”™s United since the Bridgeport-based bank raised more than $2.5 billion in a 2006 offering of stock.
People”™s United had been expected to expand its geographical footprint in the Northeast by acquiring a retail bank, as it did with its $1.9 billion buy two years ago of Vermont-based Chittenden Corp. As November closed, People”™s United announced it would open a fifth branch in Westchester County, N.Y., in Mamaroneck.
But the company did not make a deal as bank stocks bottomed out last spring, and as the Federal Deposit Insurance Corp. conducted a fire sale this year of troubled banks nationally.
Instead, People”™s United is acquiring an institution that will rank it just outside the top dozen banks nationally for equipment finance lending. In the fiscal year ending July 31, Financial Federal had a $43 million profit. The company has about $1.5 billion in assets and adds 200 employees to the People”™s United work force of 4,300 full-time positions as of the end of the third quarter.
People”™s United indicated Financial Federal is attractive for several reasons, including generating a higher yield on loans than People”™s United is able to garner; winning business on its service record rather than loan interest rates; and its geographic diversity with no more than 30 percent of its loans concentrated in any section of the country.
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“Outside of the transportation sector, there is virtually no overlap between Financial Federal”™s focus on construction and refuse, and (our existing) focus ”¦ on printing and packaging,” said Philip Sherringham, CEO of People”™s United, in a prepared statement. “Moreover, this transaction offers opportunities for People”™s United to grow our highly profitable equipment financing business with established, experienced staff in new markets throughout the country.”
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For each share of Financial Federal, People”™s United is paying $11.27 in cash and one share of its stock valued at $16.47 at the time of the acquisition agreement. The companies are working to complete the deal in the first quarter of 2010.
In October, Sherringham hinted to investment analysts that People”™s United was working one or more deals, after previously fielding questions on why the company did not do so last spring when bank stocks reached a low.
At the time, Sherringham said the bank was looking at a 50:50 split of normal acquisitions and those that could bring assistance from the Federal Deposit Insurance Corp., and said People”™s United was considering non-bank acquisitions without providing details.
“We continued to focus on proactively seeking acquisition opportunities within (the) highly desirable Northeast region from Maine to Washington, D.C.,” Sherringham said at the time. “We are also, however, open to the possibility of assisted transactions potentially even in other geographies to the extent that FDIC transactions may not be available in the Northeast, and we”™ll evaluate them.
“In the case of a FDIC transaction, it”™s a little different because you”™re really starting from a company that”™s been severely damaged, whose culture and management essentially failed,” Sherringham added. “In a sense, arguably that”™s easier because you can come in and you can set the standards. When you buy (a successful) company, they have their values, they”™ve stuck with them, they”™ve done well; and so when you need to make adjustments it takes more time.”
