After one deal falls through, Partners Bancorp finds a new buyer

Partners Bancorp, the Maryland bank that gave up on selling itself in 2022 amid a drawn-out regulatory approval process, has found a new buyer.

The $1.2 billion-asset Linkbancorp in Camp Hill, Pennsylvania, struck a $167.8 million, all-stock deal to merge with Partners, the companies said in a press release late Wednesday.

The $1.7 billion-asset Partners in Salisbury, Maryland, had tried to sell itself to OceanFirst Financial last year, but the deal was nixed in November because of high hurdles to secure regulatory approvals.

The sale to Linkbancorp came together over the ensuing three months and is expected to close in the third quarter. The companies billed the deal as a merger of equals.

Should it come together as planned, Partners shareholders would own about 56% of the combined company. But Linkbancorp is the buyer, and the combined company will be based in Camp Hill. It will operate under the Linkbancorp name.

Andrew Samuel, Linkbancorp's CEO and vice chairman, will become CEO of the combined company. The board will have 22 directors, including 12 directors from Linkbancorp and 10 from Partners. Linkbancorp Chairman Joseph Michetti Jr. will be chairman, and Partners Chairman Jeffery Turner will be vice chairman.

Speaking on a call with analysts Thursday to discuss the transaction, Samuel called the deal "extremely compelling" and said it "significantly accelerates" profitability. 

Samuel emphasized the deal would drive strong earnings accretion, add substantial scale and expand the buyer's footprint to include major markets such as Baltimore and metropolitan Washington, D.C.

Linkbancorp's footprint will reach from Pennsylvania to Maryland, New Jersey, Delaware and Virginia. It projected earnings per share accretion of 23% in 2024. It expects to earn back dilution to tangible book value within three years.

"We have a high hurdle for M&A," Samuel said, noting that Partners has below-industry-average deposit costs and strong credit quality. Those strengths would complement Linkbancorp's expectations for strong loan growth this year, he said.

Partners President and CEO John Breda will join the combined company as a market head. He will lead a legacy Partners bank unit.

For Breda and Partners, the deal marks a relatively quick rebound on the M&A front.

OceanFirst Financial in Red Bank, New Jersey, announced its agreement to buy Partners for $186 million in November 2021. Both sides said at the time that they expected to close the deal in the first half of 2022.

But "everything has just dramatically slowed down," Patrick Barrett, the chief financial officer of the $13.1 billion-asset OceanFirst, said in an interview after the deal was called off in November of last year. "The environment for M&A is just more challenging."

There were no specific complications with the deal itself, according to Barrett. He blamed a protracted regulatory approval process, saying responses from regulators during various phases simply took longer than expected, eating up precious time and resources. Eventually, he said, uncertainty surrounding the deal's ultimate fate outweighed its benefits, and the banks parted ways.

President Biden in 2021 issued an executive order calling for closer examination of mergers to promote more competition in financial services and other sectors.

Some banks also have cited staffing shortages at the regulatory agencies — symptomatic of the broader labor market crunch — as a reason for the slower reviews.

Dozens of banks over the past year have encountered regulatory delays of acquisitions, and others have sidelined their dealmaking to avoid such challenges. Others worried about a potential recession. As a result, the pace of bank M&A slowed in 2022. This continued into 2023. 

Just six U.S. bank deals were announced in January, according to S&P Global Market Intelligence data. It was the weakest level of monthly volume since 2020, when the pandemic briefly froze M&A activity.

Even as that backdrop has frustrated some would-be buyers and sellers, Linkbancorp, parent of Gratz Bank, in September of last year priced its initial public offering and started trading on the Nasdaq Capital Market. It netted more than $30 million from the IPO and, armed with fresh capital, the bank said at the time it would explore acquisitions.  

Linkbancorp has more than doubled in size over the past 18 months. It closed a sizable deal in 2021, and its chief executive presided over four other acquisitions in his career as a bank CEO.

The company in 2021 acquired the $437 million-asset GNB Financial Service in Gratz, Pennsylvania. The deal was valued at $62.7 million when it was announced. 

Linkbancorp was formed in 2018 by Samuel to serve central and southeastern Pennsylvania. Samuel founded the company after raising more than $40 million and buying Stonebridge Bank, a single-branch institution in New Hope, Pennsylvania, in October 2018.

Previously, Samuel was CEO at Sunshine Bancorp in Plant City, Florida, from October 2014 until its $177 million sale in 2018. Samuel was also president of Susquehanna Bank from February 2012 to October 2014. Susquehanna's parent company sold to BB&T (now Truist Financial) in 2015.

Samuel was CEO at the $2.6 billion-asset Tower Bancorp in Harrisburg, Pennsylvania, before its $343 million sale to Susquehanna in 2012.