GETTING the Merger Formula RIGHT.

• Author: Milligan, Jack

Like most of today's largest banks, FleetBoston Financial Corp. is the product of a series of mergers dating back to the 1980s. Unlike many of its peers, however, Boston-based Fleet has proven time and again that it knows how to make mergers work.

With a merger team headed by long-time Fleet veterans Eugene McQuade and H. Jay Sarles -- chief financial officer and chief administrative officer, respectively Fleet has earned a reputation as one of banking's most skilled acquirers. It is careful not to overpay, then uses its strong integration and financial engineering skills to extract maximum value from its acquisitions. Just as importantly, Fleet has avoided the major blow-ups that have plagued other high-profile bank purchasers in recent years.

Fleet has used its deal-making savvy and integration skills to string together enough successful deals to become the eighth largest commercial bank in the U.S., with $181 billion in assets. The U.S. banking industry has undergone tremendous consolidation over the past 15 years, and under the leadership of chairman and chief executive officer Terry Murray, Fleet has expanded well beyond its heritage as a small Rhode Island bank to become a diversified financial services conglomerate. It now has a large commercial bank in the Northeast, a Latin American operation, a brokerage firm and a discount broker, a credit card company and a commercial finance unit.

While Murray calls the shots, it's up to McQuade and Sarles to execute the bank's expansion strategy. The two executives, both vice chairmen who report directly to Murray, have developed a close working relationship, and their respective departments have handled enough acquisitions over the years to qualify for expert status.

"Fleet has a very well-regarded acquisition team," says investment banker Richard Barrett, head of the financial institutions group at Credit Suisse First Boston. "They look for value. They're a little contrarian. They like to be in when other people are out." Adds CIBC World Markets bank analyst Thomas McCandless, "They've done more creative deals over time than anyone else."

The roots of Fleet's M&A strategy lie in a brutal recession that wracked New England in the early 1990s, brought about largely by the collapse of the region's commercial real estate market. A significant number of New England banks failed, and even many of the survivors struggled for several years afterward. Fleet was one of the survivors, in large part, because it had diversified out of the region by merging with Albany, N.Y.-based Norstar Corp. in 1988. While most of the country was affected by the real estate crisis, upstate New York was hurt less than New England, and the old Norstar franchise helped keep Fleet afloat.

The region's economic crisis led directly to three strategic imperatives that have driven Fleet ever since. "One was that size was going to be important to be a survivor and a player," says Sarles. "If we wanted to be an independent company based in New England, we were going to have to grow. Two, we wanted to have significant diversity in the types of businesses we had and their geography. And three, we wanted to have a very strong banking franchise, but we needed to marry that with faster-growing [nonbank] financial services businesses."

What followed was a series of acquisitions that dramatically transformed the bank, starting with Bank of New England in 1992, BNE...