First Merchants Corp in Muncie, Indiana, has agreed to acquire Level One Bancorp in Farmington Hills, Michigan, for $323.5 million in cash and stock.
Founded in 2007, the $2.5 billion-asset Level One operates 16 branches, primarily in suburban Detroit. In Oakland County, north of Detroit, Level One holds about 2% of the $83 billion deposit market, making it the county's second-largest Michigan-based bank; the largest is the $27 billion-asset Flagstar Bancorp, which is being
Oakland County is Michigan’s second-largest county, with a population of 1.27 million, and is home to the Automation Alley technology and manufacturing hub. Level One also has a presence in Grand Rapids and in Ann Arbor, where it
Level One would be First Merchants’ 12th whole-bank acquisition since 2000 and its first since 2019, when it acquired the $1.2 billion-asset Monroe Bank and Trust in Monroe, Michigan, for $291 million in stock. It would also be its largest acquisition.
First Merchants operates 17 branches in Michigan, but its presence is concentrated in Wayne and Monroe counties south of Detroit, so there is little overlap with Level One’s footprint. First Merchants is projecting cost savings of 30%, with about 25% to be realized in 2022.
The combined company would have $17.6 billion of assets and $10.8 billion of deposits. In the Detroit-Ann Arbor region, it would have 33 branches and $3.4 billion of deposits, making it the largest community banking franchise, in the area. Oakland County is home to about 28,000 small and mid-sized businesses, according to First Merchants.
“This partnership brings together two organizations with very similar cultures and a go-to-market strategy that allows us to build upon our strong commercial banking performance while also leveraging the momentum and growth we have developed in consumer banking and residential mortgage lending in recent years,” Level One President Tim Mackay said in a press release Thursday.
Mackay has agreed to join the combined company, as have Level One Chief Credit Officer Gregory Wernette and Chief Risk Officer Eva Scurlock. Chairman and CEO Patrick Fehring will retire once the transaction closes in the first half of 2022.
Level One shareholders will receive approximately 0.72 shares of First Merchants stock and $10.17 in cash for each of their Level One shares. That consideration works out to $41.35 per share, or about 188% of Level One’s tangible book value. That’s considerably higher than the average price-to-tangible-book-value ratio of 155% for 2021 deals, according to Compass Point analyst Laurie Hunsicker.
The deal was “a competitively bid process, but I think it was a fairly limited group they went out to,” First Merchants CEO Mark Hardwick said Thursday on a conference call with analysts.
First Merchants is estimating 4.3% tangible book value dilution with an earn-back period of just under three years. The deal should result in 10.4% earnings-per-share accretion in 2023, the first full year of combined operations. Transaction costs should total $23.5 million.
“We are excited they’ve chosen to become part of the First Merchants Family,” Hardwick said of Level One. “We’re going to make this happen for all of our stakeholders’ benefit.”
