These employees, the guts of the organization, suddenly find themselves dealing with changes in policies, rates, and fees, they are asked to defend. The acquirer spends very little time and effort in actively retaining and motivating these key people.

They are susceptible to being poached by competing banks, and customers often follow. Consequently, the invariably rosy forecasts used to justify the large acquisition premium become a noose around the neck of the acquirer.

If the deal is big enough, the acquirer either has to admit the deal didn’t turn out as planned, or more frequently, find another acquisition to divert Wall Street’s attention. The fertilizer pile gets higher and higher, as shareholders of The South Financial Group, for example, have recently discovered.

While United Community Banks has been an active acquirer, they have also maintained a structure and philosophy which has produced demonstrable organic growth in the banks they acquire. (They’re one of the few banks we know of which actually discloses such information.)

Even better than actually delivering on growth in acquired banks, however, is getting the same growth without having to pay an acquisition premium. What a shareholder friendly way to expand!

It’s little wonder than UCB, at roughly 17 times what they’re likely to earn in 2005, trades at a premium to its peers.

The aforementioned South Financial Group? This company trades at roughly 13 times expected 2005 earnings, a difference which means millions.

United Community Banks, despite an asset size only one-third of the South Financial Group, has a market capitalization one-half as big. The market indeed understands the difference.