CenterState, South State took parallel paths to a merger

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The proposed merger of CenterState Bank in Winter Haven, Fla., and South State in Columbia, S.C., required years of preparation by each company.

Well before discussions began, leaders at each bank had pursued smaller acquisitions to build scale and create what turned out to be complementary footprints.

Those efforts were a key icebreaker when John Corbett, CEO of the $17.1 billion-asset CenterState, and Robert Hill Jr., his counterpart at the $15.9 billion-asset South State, first met to discuss a potential deal.

“We talked about the way we had each built our companies over the last decade and how that was probably coming to an end,” Corbett said, recalling a lunch the executives had two years ago. “There were new headwinds and opportunities, and we felt like there would be wins to be had if we partnered together.”

It took several months for the two sides to address various structural and cultural issues. The $3.2 billion merger was announced in January.

South State emerged as the name of the combined company and the bank, though CenterState’s shareholders will own a majority of the stock. The company will be based in Winter Haven, with an operational center in Columbia.

Corbett will remain CEO, Hill will become executive chairman and each company will have eight directors. The remaining management will be evenly divided, with executives already tapped for specific, key posts.

Plans for the next level of leadership will be decided well in advance of the deal's expected closing in the third quarter.

The end result will be a $34 billion-asset regional bank with more funds available to invest in the technology and talent needed to compete for the next decade and beyond.

Corbett and Hill, in a recent conversation, discussed how the deal came together and what lies ahead for the bank. They also discussed the M&A landscape and their views on banking.

Here is an edited transcript of that conversation.

How long did it take for the deal to come together?

JOHN CORBETT: Our history goes back 10 years. We were first introduced during the financial crisis, when we were figuring out FDIC transactions. We got to know each other and realized we had a lot on common. Both of us went to college in South Carolina. We both started our banking careers with national banks in Charlotte. We both left and started de novo banks in rural markets, and really grew those banks in a similar way.

We stayed in touch, and almost two years ago, Robert invited me to his house for lunch. We talked about the way we had each built our companies over the last decade and how that was probably coming to an end. There were new headwinds and opportunities, and we felt like there would be wins to be had if we partnered together. … Then we really got the fire lit about five months before the announcement, where all of the management teams were working to find out how our teams would blend together.

How will the merger position the bank for the digital era?

CORBETT: There are two new external forces. One is low interest rates. In a spread business, you have to figure out how to rebuild the delivery system in that kind of environment. And then there is the digitization of the business. At CenterState, we had been so busy integrating the acquisitions that we made in recent years that we had not had as much time as South State had to innovate. We felt like South State was a year or two ahead of us on the technology front, so we could see that putting the companies together would really help accelerate that digital delivery to our clients.

"South State was a year or two ahead of us on the technology front, so we could see that putting the companies together would ... accelerate that digital delivery to our clients," says CenterState CEO John Corbett.

ROBERT HILL: South State is a 90-year-old company. We tend to think about changes in the industry and investment over decades, not quarters or even years. So as we look out over the next decade, we saw that customer interaction, the way banks would operate from an efficiency standpoint, was going to change meaningfully. Then it came down to who had a similar view of the world that you could trust and build with. That’s what brought us here.

About 20% of our customer volume is done digitally. Five years from now, that could reach 50% or 60%. This merger accelerates our ability to invest in technology, and it accelerates the pace at which we can adapt to technological change. It also gives us the scale to execute. Combined we’ll have about 1 million customers in 10 of the 15 biggest markets in the Southeast.

What feedback have you received from investors and analysts?

HILL: The feedback from investors has been extremely positive. Sometimes mergers are about tearing one company apart. This is about two really good companies coming together to build something even better. I think the financial outcome will be very good in the short term and in the long term.

CORBETT: Long before we got to the pricing of the deal, we spent months and months building the team and making sure we were building something that would stand the test of time. Now, the outputs, from a financial standpoint, I think are equally compelling. You look at over 20% EPS accretion and a less than one-year earnback — typically those are metrics investors can get excited about.

Combining leadership teams can be challenging. Can you talk about that?

CORBETT: When you look at the combined experience of everyone on our management teams, there is something like 59 or 60 integrations between us. There’s a lot of experience in putting teams together, but it does take time. This isn’t something you want to figure out post-announcement. Building a management team needs to be ironed out with great detail, by roles, before the announcement. This really started with Robert’s and my roles, and that started at our lunch two years ago. From that moment forward, we’ve done a lot to learn about each other’s teams, person by person.

Hill: We’ve been neck-deep in planning, and we are more than five months along. … We’re complementary companies. They have a very robust capital markets business, and we have significant wealth management, for example.

There’s a lot of talk about disruption in the Southeast due to several prominent deals, including this one. What are you doing to retain talent and customers?

CORBETT: There is zero geographic overlap with the branch network. Branch consolidation is disruptive, to employees and managers, but with this transaction, there’s none of that. This is really about building best-in-class platforms and the technology that goes with them. So [employees] will not feel the disruption of other deals in the past where there is a lot of branch consolidation.

"The vision of our company has always been to build up a really strong Southeast bank, so our employees see this [merger] as fulfilling that vision," says South State CEO Robert Hill Jr.

HILL: Our bankers understand the changes going on in the industry and would rather us be proactive … and thoughtfully opportunistic. And the vision of our company has always been to build up a really strong Southeast bank, so our employees see this as fulfilling that vision. The other piece is, we are so significantly differentiated.

Can you capitalize on disruption?

HILL: The market leaders and division leaders today, they stay exactly where they are. Our credit structure will stay the same. So that, in and of itself, reduces disruption and allows us to focus on building. … The inbound calls from outside bankers, we’re getting a lot of those from people who recognize this is a really strong Southeast franchise at a good size. People want to be a part of this.

Will we see more deals like this?

CORBETT: These combinations are going to continue to occur, and Robert and I … were fearful that if we waited that something would change. We feel that by announcing this now, we have a first-mover advantage and are putting together the two best companies in the Southeast.

With the macro environment, are you seeing anything to be concerned about?

HILL: Just taking a look at the in-migration of companies and the in-migration of people here in the Southeast, we don’t see that slowing down. We continue to see extremely healthy economies across all of our markets.

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