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In his interview with Bank Director U.S. Bancorp (NYSE:USB) CEO Richard Davis lays out an approach to M&A that's as sensible as it is rare among big-company CEOs:

With acquisitions, we have a few paradigms. One is, a deal can’t be dilutive. A lot of companies will forgive dilutive deals because they want to get to the other side. Someone might say, “It’s such a small deal, eight branches or something, and you really want to get into that market, so why not just do it?” But if it’s not accretive, it doesn’t matter how small it is. We won’t pursue it.

The second is, size doesn’t matter. If we don’t do one more deal as long as I’m CEO, it doesn’t matter to me. I’m all over being the best bank we can be, not the biggest.

And last, we want to make sure we’re using our capital wisely. That means we don’t necessarily take the first deal that comes along, because there are only so many transactions we can do. A deal has to be relevant both on its own merits and compared to whatever else might emerge. [Emph. added]

Richard (who's on our board) is exactly right; all financial services CEOs should take this same approach to evaluating deals. Unfortunately, hardly any do. Too many CEOs are a) in love with size for the sake of size, and are willing to dilute the heck out of existing shareholders in order to achieve it (Ken Lewis, you know who I'm talking about!), and b) don't have a clue about capital allocation. It is no coincidence, by the way, that USB is one of the best-run big banks in the country.

Source: U.S. Bancorp's Sensible Deal Skepticism