Chapter 14 Acquisitions

The reason I selected Pinnacle Financial Partners as my company to follow is because I was intrigued by the company’s aggressive acquisition strategy. Pinnacle’s CEO has stated publicly that he plans to grow the company by acquiring competitors. The company has used the horizontal merger strategy to gobble up competitors and enter new markets. It’s most recent acquisition was the acquisition of North-Carolina-based BNC Bankcorp. This deal allows Tennessee-based Pinnacle to expand into Virginia and the Carolinas. Other acquisitions include: Avenue Bank, Mid-America Bankshares, Magna Bank and CapitalMark Bank. Each acquisition allows Pinnacle to grow larger and stronger, entering new markets and gaining market share. This is a smart strategy because by acquiring existing banks, the company has a built-in customer base when it enters new markets.

Chapter 13 Grizzlies Banking

Pinnacle Financial Partners announced in August 2016 that it has a partnership with the Memphis Grizzlies. The arrangement seems like a licensing agreement, but the company refers to it as an alliance. The partnership introduces Grizzlies Banking which allows Pinnacle to use the Grizzlies brand on its debit and credit cards and target Grizzlies fans with customized promotions. As part of the partnership, Pinnacle is launching grizzliesbanking.com. The partnership will provide exclusive naming rights dubbed the Pinnacle Level concourse and seating at the FedEx Forum. Pinnacle has been dubbed the exclusive Grizzlies marketing partner. This agreement has components of a strategic alliance and components of a licensing agreement. The competitive benefit to Pinnacle is that the company can take advantage of the brand equity that comes along with being affiliated with the Grizzlies. Pinnacle now has an avenue to introduce itself to Grizzlies fans and possibly convert them to new customers.

Chapter 12

Pinnacle Financial Partners has an M form organizational structure. The company released a new organizational structure that shows how the company will be organized once its merger with Mid-America Bancshares is completed. It’s hard to see but there is a board of directors at the top and the two yellow highlighted positions are the two executives from Mid-America that were merged into Pinnacles existing corporate structure.

 

According to the company, three Mid-America board members will become directors of Pinnacle’s board.

 

	•		David Major will be Pinnacle’s area chairman and will retain broad oversight responsibilities for Wilson County.

 

·         Gary Scott will be Pinnacle’s area chairman and will retain broad oversight responsibilities for Dickson, Cheatham and part of Williamson counties.

	•		Sam Short, president and COO of Bank of the South, will become Pinnacle’s area executive for Wilson County and a member of Pinnacle’s Leadership Team.

 

·         Jason West, president and COO of PrimeTrust Bank, will become Pinnacle’s area executive for Dickson, Cheatham and part of Williamson County and a member of Pinnacle’s Leadership Team.

Diversification of Service Lines

While Pinnacle Financial Partners is a bank, the company has diversification of revenue streams. The company is involved in five areas of diversification: Financial Planning, asset management, wealth advisors, trust and insurance. The company also has diversification within its area of core competency, which is consumer banking. Within the consumer banking arena, Pinnacle has specific target areas such as mortgages, loans, online banking, health savings accounts, and Grizzlies Banking for Grizzlies fans. Customers who sign up for Grizzlies Banking get extra benefits such as a free Grizzlies debit card with not usage fees.

The five areas mentioned above are extra service lines that provide a cash flow for Pinnacle. It’s a way for the company to protect itself from market influences. For example, if Pinnacle is not making money from mortgage loans, it might still have an opportunity to get additional revenue from selling insurance.

Pinnacle bank continues its expansion strategy. Since my last blog post, the company has announced that it has added 17 bank officers to its locations in the Chattanooga regions.

https://www.pnfp.com/about-pinnacle/media-room/pnfp-in-the-news/pinnacle-adds-17-bank-officers-since-buying-capitalmark

Approximately two years ago, the company purchased one of its smaller competitors, which is Capitalmark and now Pinnacle wants to continue to expand by adding bank officers who can bring in new business. 

According to a company press release...

     "Chattanooga has been one of our better performing markets and we see a lot of opportunity here for more growth," McCabe said in an address to the Chattanooga Rotary Club. "We started targeting this area in 2013, and we were very fortunate the acquire CapitalMark with its great people and market knowledge."

Pinnacle had less than 6.6 percent of the deposits in the Chattanooga metropolitan market in the latest FDIC report for last year. But McCabe said by hiring experienced bankers — all of whom have at least 10 years of proven experience— Pinnacle has succeeded in growing market share. He boldly predicted Thursday that Pinnacle will eventually displace at least one of the three top regional banks in Chattanooga.

"Our goal is to be No. 1, 2 or 3 in each of the markets where we operate," McCabe said. "We will probably add about one office a year (in the Chattanooga market), but we will grow primarily by having great bankers focus on their customers."

 

Chapter 10 is about vertical integration. Pinnacle has in house brokers who handle investments in-house rather than outsourcing to an investment firm. This is an example of vertical integration because the bank in participating in a new area along its value chain.   

I believe Pinnacle’s relationship with Avenue Bank in Nashville was an example of Tacit collusion. When Pinnacle purchased Avenue Bank, one of the founders of Avenue Bank was given a seat on Pinnacle’s board of directors.  After the sale, Pinnacle continued to grow the Avenue Bank brand before changing the name to Pinnacle. See links below.

http://www.businesswire.com/news/home/20160128006576/en/Pinnacle-Financial-Partners-Announces-Agreement-Merge-Avenue

http://www.bizjournals.com/nashville/blog/2016/01/why-ron-samuels-sold-his-10-yearold-avenue-bank-to.html

 

Pinnacle has both real assets and financial assets. The company is undergoing a growth strategy. Flexibility and real options are a source of sustained competitive advantage for Pinnacle. The company is trying to develop signature tools and customer service options that can’t be duplicated. The company has entered into a strategic alliance with Starbucks to offer a Starbucks within some of the bank’s branches.

 

http://www.bizjournals.com/memphis/news/2017/02/17/see-inside-starbucks-to-debut-inside-bank-branch.html

 

Pinnacle has used the concept of product differential, specifically distribution of service channels to stand out among its competitors. The company allows its customers to use any ATM machine in the nation free of charge for deposits and withdrawals. This is a great service to customers because they don't have to drive out of their way to use an ATM. This makes Pinnacle stand out tremendously among competitors because its an added customer convenience other banks do no offer.  

Pinnacle Financial Partners has an advantage over other banks with its technology. In chapter 6 the book discusses how technological hardware and technological software can lead to a cost advantage for companies. Pinnacle uses technology to allow its customers to use any ATM in the country without a fee. This can be a cost advantage because the company is saving money by not having to purchase and maintain its own ATM machines and pay for locations to place them. Many of Pinnacle's competitors have ATM locations strategically placed throughout cities in the U.S. Pinnacle can gain a cost advantage because the company doesn't have that expense.

Background: Pinnacle targets small businesses and their owners (individuals with personal assets greater than $250,000.)

In terms of competitive advantage, Pinnacle has several elements that are worth mentioning.

1.       Pinnacle competes with larger banks that have many more branches than them. To get a leg up, Pinnacle has a courier deposit pick up system. This is a convenience to customers because they don’t have to go to the bank to make deposits.

2.       Pinnacle customers get unlimited usage of any ATM in the world with no surcharge fee. This is different from other banks who charge their customers a fee to use any ATM that’s not owned by their bank.

3.       Pinnacle invest a lot in its customer and attracting and retaining highly skilled employees. The company’s associate retention rate is 96 percent compared to an industry standard of 75 percent. It’s listed as one of Nashville’s best places to work.

These are just a few examples of items that are strengths for Pinnacle. In term of evaluating general managers look at the fact that Pinnacle targets experienced managers who have worked for their competitors. This shows that Pinnacle’s general managers are more qualified than the average general manager and this is a competitive advantage. Most of them also bring inside knowledge of their competitor’s operations.

When you look at VRIO, by offering conveniences like free ATM transactions and courier deposit pick up, Pinnacle has created value for its customers. A competitor can try to duplicate this, but these are just two examples that are part of a culture of innovative customer trends. This culture would be hard for competitors to duplicate because there are probably many small things that contribute to the overall customer experience.

Neutralizing the threat of rivals

Chapter four discusses evaluating opportunities. As I stated last week, Pinnacle purchased US Bancorp and the purchase allowed Pinnacle to enter three new markets. This was a smart move when you consider that an alternative strategy could have been for Pinnacle to enter the markets by opening its own branches. By purchasing US Bancorp, Pinnacle removed one if its rivals. The move also allowed Pinnacle to better compete with other rival banks in the market by entering with an established customer base.

Pinnacle also used the strategy of preemption of valuable assets. Pinnacle had an aggressive strategy of stealing top employees from competitors. Employees are a company’s most value asset.

Hello, one of the topics in Chapter 3 discusses threat of rivalry as an environmental threat and barrier to entering a new market. Pinnacle in January of 2017 expanded its operations into the new markets of North Carolina, South Carolina, and Virginia by purchasing North Carolina-based US Bancorp. This merger gives Pinnacle a new significant presence in Charlotte, Raleigh, Greensboro, Winston-Salem, N.C., and Greenville-Spartanburg and Charleston, S.C. Had Pinnacle tried to enter these markets on its own without the acquisition, the company would have faced significant competition from competitors such as Bank of America Corp., Wells Fargo, BB&T, Fifth Third, etc. Pinnacle would have had to purchase real estate for its branches and compete with existing branch locations from competitors that were already open and frequented by customers. By gobbling up U.S. Bancorp Pinnacle was able to overcome some of the significant barriers to entry and go into three new markets and compete on a level playing field with its rivals.

 

 

 

 Hello, the company I have selected to follow is Pinnacle Financial Partners Inc. (PNFP). Pinnacle is a financial services company based in Nashville, Tennessee that  operates 45 locations and is one of the fastest growing banks in the region.

 

Chapter 2 Blog Post

 

 



Chapter two of our book looks at firm performance and competitive advantage. Pinnacles states that its business strategy is excited associates (intentional creation of a great workplace), engaged clients (giving clients an experience they can't get from Pinnacles' competitors) and enriched shareholders (outsized shareholder returns). The company has used the strategy of growing its market share by acquiring competitors. Not only is Pinnacle buying entire companies, the company began its growth strategy by luring top employees from other Nashville banks. I thought this was a brilliant strategy because Pinnacle was a start up bank when it launched in 2000 the company set out on an aggressive growth strategy and was able to snag top employees who worked for their competitor who already had many years of experience and knew both the banking industry and the competitive landscape well. This gives Pinnacle a significant competitive advantage in the marketplace because not only do they have experienced employees, but they also have a team of executives who are made up almost entirely of people who worked for their competitors and have inside knowledge of what their competitors are doing and what their competitors strengths and weaknesses are.

 

Over the years, Pinnacle has continued to be named one of Nashville's best places to work.

 

I tried to come up with a Z score for Pinnacle but I learned that the Altman Z score does not apply to banks and insurance companies. I need to do more research on this because I would like to find out why.