NewAlliance Bank announced last week it will acquire West Springfield, Mass.-based Westbank Corp. for about $116 million in cash and stock.

One of Connecticut’s fastest-growing banks has reached outside of the state with its third acquisition in a little more than a year.

New Haven-based NewAlliance Bank announced last week it will acquire West Springfield, Mass.-based Westbank Corp. for about $116 million in cash and stock. The highly sought-after Westbank Corp. is the holding company for Westbank, a commercial bank and trust company with $822 million in assets. The bank operates 17 branches – one of which is scheduled to close this summer – mostly along the Interstate 91 corridor in Massachusetts.

“It seems to make a good, logical fit,” said Joe Sullivan, chief executive officer at Market Insights, a Chicago-based bank consulting firm.

NewAlliance President, Chief Executive Officer and Chairman Peyton Patterson echoed that sentiment in a call to investors last week.

“This is a partnership that, from a map point of view, really nicely aligns up the corridor of I-91,” she said. “This is, I think, a very straightforward, logical acquisition for NewAlliance to do.”

Four of Westbank’s branches are in Connecticut’s Windham County. After the acquisition, NewAlliance will have about 87 branches, Patterson said.

The acquisition is the envy of other institutions that had Westbank in their crosshairs, and the investment community would have to give NewAlliance high marks for the move, according to John Carusone, president of the Bank Analysis Center in Hartford.

“I think it’s a strategic coup,” he said, adding that the geographic extension is highly desirable.

But the transaction was very fully priced, at about 20 percent over average takeover multiples for the area. NewAlliance will have to work hard to assure the acquisition was worth it.

“All the heavy lifting is in front of them,” Carusone said.

The transaction allows NewAlliance to get a nice toehold in Massachusetts, Patterson said, and the cost-effectiveness of acquiring Westbank versus expanding through de novo branches is significant. The acquisition was “an extremely attractive alternative,” she said, because Westbank is a very profitable commercial bank.

“It’ll be a deal that’s easily digestible,” Patterson said.

The bank views the acquisition as a low-risk transaction, and it could be followed by more growth in Massachusetts or elsewhere.

“This is a jumping-off point for us,” Patterson said. “We see Massachusetts as an attractive market.”

‘A Seller’s Market’

According to Kevin Handly, director and shareholder at the law firm of Gallagher Callahan & Gartrell in Boston, there seems to be a lot more growth in the industry for Connecticut-based institutions than for their Massachusetts-based counterparts. He called the NewAlliance deal a market extension merger, and said that Massachusetts banks seeking to be acquired have an advantage because they are very in demand.

“Right now it’s pretty much a seller’s market,” said Handly. “I would think there would be quite a few interested in buying them.”

NewAlliance’s move into Massachusetts will increase competition for the other banks in the area, said Jim Jones, president and founder of First Wellesley Consulting Group, a Wellesley, Mass.-based management advisory firm that specializes in the financial services industry.

“I believe they have a growth marketing strategy,” he said. “I think they view their best long-term strategy to be an acquisition strategy. I think it is going to increase competition for the banks in the Westbank [footprint].”

The added competition could lead to more aggressive pricing and speed up the adoption of new technology and products. Although consumers might benefit from a more competitive atmosphere, the flip side is the demise of community banks, said Jones.

“The sad thing about it is that I do think we will have continued consolidations,” said Jones.

Jones said many people see a community bank’s departure as a loss, since many community banks have lasted decades and become a staple in the area they serve.

“The economics will no longer support the number of community banks we have in Massachusetts,” said Jones.

Community banks across the country are “doing what they need to do,” and merging with larger institutions, Sullivan said. It is difficult to compete with larger institutions that are reaching into nearly every area of the country, so small banks are being acquired to stay alive.

“Consolidation has hit [the East Coast] very hard,” he said.

NewAlliance itself is the result of small banks merging to stay competitive. The New Haven Savings Bank in 2004 acquired Tolland Bank and the Savings Bank of Manchester to form NewAlliance.

Even larger, regional banks like Pennsylvania-based Sovereign Bank could be acquired in the near future. Banks like Sovereign continue to grow, but it is likely only a matter of time before another institution acquires them, Sullivan of Market Insights said.

Patterson said she is confident in NewAlliance’s ability to compete in Massachusetts, which the bank will treat as a separate region, because most of the competition there is familiar. Waterbury-based Webster Bank has been expanding there through de novo branches, and institutions like Providence, R.I.-based Citizens Bank have a presence in Connecticut, as well.

“The good news is, we know the competition,” Patterson said. “We compete with them already.”

Bob Segal, chief executive officer of Danvers, Mass.-based J. William Mantz Investment Advisors, said he was a bit surprised that NewAlliance has decided to plunge into the Massachusetts market before some of its Connecticut-based competitors.

Segal also said although some community banks are exiting the market, Massachusetts continues to see start-up activity. But while new banks are not forming at the same rate as mergers and acquisitions, the community bank is not facing extinction, he said.

“I think you are going to continue to see consolidation,” Segal said. “The fact is that it’s so competitive out there.”

However, he added, “I think there will always be enough customers that want to bank locally.”

Many larger banks still try to have some hometown appeal.

“NewAlliance is committed to continuing our tradition of community-based banking in the markets we serve,” Westbank President and Chief Executive Officer Donald R. Chase said in a prepared statement. “We believe that a combination with NewAlliance will positively benefit both our shareholders and our customers.”

NewAlliance last year acquired Stamford-based Cornerstone Bank, giving it a foothold in Fairfield County, and possible entrée into New York’s Westchester County. It also acquired the Trust Company of Connecticut last year.

Patterson said she also expects a smooth changeover after the acquisition is complete. Both banks use Fiserv, so that should help.

“That helps in theÂ… conversion of our system,” she noted.

The deal is still subject to the approval of the Westbank shareholders, the banking departments of both states and the Federal Deposit Insurance Corp.

“This is a perfect strategic fit as NewAlliance seeks to grow its community banking footprint in contiguous markets,” Patterson said in a prepared statement. “We make our first entry into Massachusetts just across the border from some of our Connecticut branches. Together, we can better serve the personal and business needs of Westbank’s customers with our greater financial resources and lending capacity, but with the same community banking approach.”