Regions Financial has acquired Charlotte-based investment bank BlackArch Partners, as the Alabama-based regional bank continues to expand capital markets services for corporate clients.
BlackArch, founded in 2010, will keep its name, leadership and headquarters in Charlotte, operating as a subsidiary within Regions’ capital markets group.
The firm will serve as the bank’s main unit advising midsize companies on mergers and acquisitions, the Birmingham-based bank said. Financial terms were not disclosed for the deal, which closed this week.
Regions started an M&A business a little more than a year ago, but acquiring BlackArch jump-starts that effort, said Terry Katon, the Charlotte-based head of Region’s capital markets business.
“It was a great opportunity for us to accelerate our ability to bring these capabilities to our clients,” he said.
BlackArch started talking to Regions about a potential joint venture more than a year ago, and the talks eventually moved toward an acquisition, said Drew Quartapella, one of BlackArch’s founding partners. Regions’ backing will help the firm grow faster than it could have on its own, without changing its identity, he said.
“As a result of this we are still very much BlackArch, and we’re going to continue to grow this brand,” Quartapella said.
The firm has about 50 employees and that is expected to grow under Region’s umbrella in Charlotte and other locations around the country, said Matt Salisbury, another BlackArch founding partner.
“It’s not an unrealistic goal to double to close to 100 people over the next five years,” he said.
In addition to Quartapella and Salisbury, BlackArch’s other founding partners – Will Cooper, Bram Hall, Kelly Katterhagen and Gordie Vap – will continue to run the firm. Before BlackArch, they had worked at firms such as Bowles Hollowell Conner, Edgeview Partners, Harris Williams and JPMorgan Chase.
A handful of existing Regions bankers offering M&A services will become part of BlackArch, Katon said.
For years, Charlotte has been a hotbed for boutique investment banks that advise midsize businesses on mergers and acquisitions, as entrepreneurial bankers from Wachovia and Bank of America have left to launch their own firms.
BlackArch is the latest of these firms to sell to a larger financial institution. Edgeview Partners was bought by Piper Jaffray in 2013, and that same year McColl Partners, founded by retired Bank of America CEO Hugh McColl Jr., was acquired by a Deloitte subsidiary.
For Salisbury and Quartapella, it’s the second time they have sold an investment bank they founded. In 2007, CIT Group acquired Edgeview Partners, which they started in 2001. CIT, however, struggled during the financial crisis, and the pair later departed. Edgeview emerged as an independent company again before being bought by Piper Jaffray.
Salisbury and Quartapella said the deal with Regions is different because the firm is keeping its own identity and isn’t being merged into another M&A practice.
Regions eyes more fee income
Regions is a midsize bank with $125 billion in assets and branches in 16 states across the South, Midwest and Texas, including North Carolina. The company sold off its Morgan Keegan retail brokerage unit to Raymond James in 2012, but has continued to build capabilities in capital markets, such as the issuing of debt for corporate clients.
Although Katon is based in Charlotte, the bank’s capital markets business is headquartered in Atlanta. The business remains a small part of the company’s overall income, accounting for $29 million of the bank’s $1.3 billion in revenue in the third quarter. But the bank is looking to boost the revenue it makes from fees, at a time when low interest rates are squeezing margins from lending.
“Regions has a goal of growing its non-interest revenue as a percent of overall revenue meaningfully from where we are today, and capital markets will be one of the leading drivers of that growth,” Katon said. In the third quarter, fee income accounted for 37 percent of Regions’ total revenue.
In addition to its retail banking presence, Regions already has almost 60 employees in Charlotte within its corporate bank. That includes Katon’s capital markets group, a specialized industries unit and other corporate bankers who work with large commercial clients.
Regions expects to add more people in these areas in coming years and is already planning to take out additional space at its location on East Morehead Street, Katon said. BlackArch will stay in its offices in the Carillon building on West Trade Street.
The BlackArch acquistion comes at a hot time for the M&A market. Quartapella said the firm’s pipeline of prospective deals is as strong as it’s ever been.
“Knock on wood,” Salisbury said, “there’s nothing on the horizon at this point that seems to signal the market will turn.”