BH Equity Fund
| Strategy AUM | $54 Million | |||
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The Context BH Special Situations Fund is positioned to take advantage of two complementary elements of
the current community bank environment:
- Relative value. Small banks continue to be subject to a large liquidity discount. Sub-billion dollar asset healthy banks are being valued at roughly 60% of the level of their larger, more liquid peers.
- Opportunity in the turmoil. Over the next three years select small banks will grow rapidly, profitably, and with low risk through FDIC-assisted acquisitions, branch purchases from troubled competitors, and highly accretive whole bank acquisitions of healthy peers.
There is a unique opportunity to arbitrage the relative value gap between smaller, illiquid and larger, more liquid community banks. Our strategy is to provide, at historically low valuations, select small banks with the capital necessary to support three stages of rapid growth:
- FDIC-assisted acquisitions. As a rule of thumb, a bank must raise $10m for every $100m in permanent assets it acquires through FDIC transactions. Based on the terms of recent small FDICassisted deals, it is reasonable to expect that over three years acquirers will capture excess profits of up to $10m for every $100m in permanent assets acquired.
- Branch acquisitions. Troubled banks continue to shedS assets, divesting at fire-sale prices what they are able to sell rather than what they would like to sell. While branch acquisitions are not as profitable as the best FDIC-assisted transactions, they can be competitive with average deals, and give buyers the opportunity to cherry pick by bidding on only the assets that build long-term franchise value.
- Whole-bank acquisitions. The healthy bank merger market has been dormant for two years. In the meantime, community bank management teams and Boards have gotten closer to, and in some cases passed, the point at which they are eager to sell their bank and retire. After growing rapidly through FDIC-assisted transactions and branch acquisitions, portfolio banks will list, receiving the higher valuation multiples given to larger, more liquid banks. With this currency, portfolio banks will be able to continue to rapidly and profitably build their franchise by acquiring select healthy peers at attractive prices.
Today’s operating environment favors well-capitalized young banks located in the right markets with strong management teams and aggressive growth plans. The Context BH Equity team, with over a decade of experience investing in the community banks, offers the solid foundation of industry relationships and deep market insights that enable unique analysis and give investors exposure to premium deals.
Banks