In an effort to prevent post-merger runoff, Pinnacle Financial Partners Inc. of Nashville is offering retention bonuses to all employees of a Nashville company it is buying, Mid-America Bancshares Inc.
Pinnacle, which has assets of $2.3 billion, announced the $196 million cash-and-stock deal late Wednesday. As part of the agreement, it would set aside $5.4 million to pay out to Mid-America employees who stay on with Pinnacle through January 2009, or roughly a year after the deal closes.
Acquisition agreements typically include provisions to keep top-level executives on board. But analysts said it is rare for a buyer to offer financial incentives to retain an entire work force.
"I have not ever seen" such an offer "that included 100%, every single employee," said Barry McCarver, an analyst at Stephens Inc. "Probably two-thirds of the time there is some sort of earnout for the top management or top producers … but for the whole team, that is very unusual."
By acquiring the $1.1 billion-asset Mid-America, Pinnacle would become the largest independent bank headquartered in the Nashville metropolitan statistical area, with 34 branches and nearly $4 billion of assets. It would have the fourth-largest market share in the Nashville market.
Terry Turner, Pinnacle's president and chief executive, said in a conference call Thursday that his company has been eager to bulk up in Nashville because the market is among the fastest-growing in the Southeast. Its median household income growth rose 26% from 2000 to 20006.
And the Nashville region has received "great recognition as one of the most attractive business expansion and relocation markets in the United States," Mr. Turner said.
The acquisition would be Pinnacle's second since it was created seven years ago, and would accelerate its already fast growth. Its assets more than doubled, to $2.1 billion, from Dec. 31, 2005, to Dec. 31, 2006.
Still, acquisitions can backfire when certain employees leave — and take clients with them. Mr. Turner said the retention bonuses and noncompete agreements should keep disruption to a minimum.
"We feel like we're in great shape by the fact that four key managers are bound by multiyear noncompetes, and we've structured this transaction so that there is actually a retention bonus pool that impacts 100% of the associates," he said. "We're highly confident that we'll be able to keep what we are paying for."
J. Corey Shipman, an analyst at Stanford Financial Group, said the retention package "sends a good message to the employees who typically get nervous when [acquisitions] are announced and perhaps start to look elsewhere."
Pinnacle's last acquisition was in March 2006 when it bought the $605 million-asset Cavalry Bancorp Inc. of Murfreesboro, Tenn.
Gary Scott, Mid-America's chairman and CEO, said Pinnacle's handling of that integration made it an attractive merger partner.
"We looked at the success of the Cavalry integration and we liked that," Mr. Scott said. "They did a terrific job of keeping that franchise in place and moving ahead with meeting all of the financial goals."
Mid-America was formed in 2006 by the merger of equals of PrimeTrust Bank in Nashville and Bank of the South in Mount Juliet, Tenn. Since Mid-America is so young, it has not had time to fully integrate its two subsidiaries, Mr. Turner said. "So there are significant cost saves that are available to us as a result of putting three bank platforms together instead of two," he said.
Pinnacle plans to rebrand Mid-America's branches in the second quarter of next year.
The deal price is 1.8 times Mid-America's book value, compared with a median of 2.7 times book for deals of similar size announced this year. The median price-to-book of like-sized deals for Tennessee commercial banks announced since 2006 is 3.41 times book.
Gary Tenner, an analyst at SunTrust Robinson Humphrey, said the price "certainly seems reasonable given the strength of the market in middle Tennessee."
Pinnacle said it expects the deal to yield cost savings of about $7 million in 2008 and $8.4 million in 2009 by consolidating operating platforms, closing three branches, and eliminating 15 to 30 jobs.