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Originally published November 11, 2012 in Crain’s Detroit Business by Tom Henderson

With latest acquisition, Talmer bulks up for possible IPO

Troy-based Talmer Bancorp Inc. has moved one step closer to a possible initial public offering with the planned acquisition of First Place Financial Corp. of Warren, Ohio, the holding company of First Place Bank.

“We’re looking at that. Getting to almost $5 billion in assets helps the process,” David Provost, Talmer’s president, chairman and CEO, said of a possible IPO. Nothing is imminent, he said.

“This is a blockbuster deal,” said John Donnelly of the Grosse Pointe investment bank DPP & Partners. The firm was not involved in the pending transaction.

“It’s a blockbuster deal first of all because it more than doubles the bank’s size. And it’s a blockbuster deal because of the way they did it,” Donnelly said.

The proposed deal would add about $2.6 billion to Talmer’s current asset base of $2.2 billion. Talmer agreed to pay the holding company $45 million and infuse up to $205 million in capital in First Place Bank, an infusion needed to improve the bank’s ratio of capital to assets and keep state and federal regulators from closing it down.

Talmer’s first strategy for growth — it was a single branch with about $90 million in assets then known as First Michigan Bank when it made its first acquisition, of Port Huron-based Citizens First Bank, in April 2010 — was to buy the assets of banks shut down by state and federal regulators.

The Citizens First acquisition was financed by a fundraising of $200 million by First Michigan, led by nearly $50 million from New York financier Wilbur Ross and his W.L. Ross & Co. LLC.

Among subsequent acquisitions were Peoples State Bank of Madison Heights, Community Central Bank of Mt. Clemens and First Banking Center of Burlington, Wis. Following the Wisconsin acquisition and with Illinois and Ohio in mind, First Michigan changed its name to Talmer.

But as the Federal Deposit Insurance Corp. has run through its supply of troubled banks to close, opportunities have become rare. Talmer’s last such acquisition was of Community Central in April 2011.

“Talmer said, ‘We need to have a multipronged growth strategy,’ ” Donnelly said.

That strategy turned out to be an asset sale under Section 363 of the U.S. bankruptcy code, still a rarely used practice in banking circles but popular in manufacturing. It was first used in 2010 when a California-based private equity firm, SKBHC Holdings LLC, bought AmericanWest Bancorp Inc. of Spokane, Wash., and its $1.5 billion in assets.

“This borrows a page from the manufacturing and industrial sector,” Donnelly said. “It’s a very innovative technique. If Talmer pulls this off, it will position them to do more deals.”

He said Talmer could use another 363 deal to finally get into the Chicago market, which Provost has long been on the record about wanting to enter.

Although a bid process will be put in place, Donnelly said, Talmer’s bid probably will prevail.

“The investment banker for First Place has been on the street a long time,” Donnelly said. “Lots of people have kicked the tires on this. But, you never know, another bid could come to the table.”

Provost said he will continue to be active on the deal front.

“I have discussions every day. There are so many opportunities,” he said. “The banking industry will continue to consolidate.

“There’s a need for capital by a lot of different banks, and we have that resource available to us.”

In February, Talmer announced that it had secured commitments for a second major round of fundraising — $174 million to finance expansion, including another investment from Ross.

On Oct. 29, the same day the Talmer deal was announced, First Place Financial filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in Wilmington, Del. First Place listed assets of $175.3 million and debts of $64.5 million. According to the FDIC, as of June 30, First Place ranked No. 17 in Ohio in deposits, with 43 branches and about $2.1 billion in deposits.

Talmer ranks 14th in deposits in Michigan, with $1.4 billion in 34 branches. It has $379.4 million in 14 branches in Wisconsin. Chase Bank is No. 1 in Michigan with $29.2 billion in assets.

The acquisition, if successful, will make Talmer the third-largest bank headquartered in Michigan, once the pending sale of Citizens Bancorp Inc. of Flint to FirstMerit Corp. of Ohio closes in the second quarter next year.

Talmer would have about $4.8 billion in assets. Chemical Bank in Midland has about $5.3 billion, Citizens about $10 billion and Troy-based Flagstar Bank about $14.9 billion in assets.

The court must certify Talmer’s bid as fair, then initiate an auction. If Talmer’s stalking-horse bid is unsuccessful, First Place Financial will be paid $5 million.