MainSource Financial knew in advance what it wanted from a potential acquirer.

The Greensburg, Ind., company’s board was determined to keep most of its management in place in the event of a stock transaction. Directors also wanted commitments to MainSource employees and support for the $4.6 billion-asset company’s home market.

Having such clear objectives paid off when MainSource agreed in July to sell itself to First Financial in Cincinnati. The $1 billion transaction remains one of the biggest bank deals announced this year.

The $8.7 billion-asset First Financial agreed to make Archie Brown, MainSource’s CEO, its leader as part of the deal. Claude Davis, First Financial’s CEO, will become executive chairman.

The company will commit at least $1 million over a five-year period to charitable and community groups in Indiana’s Decatur County. It also pledged to retain at least 100 jobs in Greensburg. And First Financial has already offered jobs to a number of MainSource’s executives.

While those concessions were disclosed when the deal was announced, a recent regulatory filing shed more light on how those agreements were reached. The disclosures also show how factors other than purchase price can factor into a decision to sell.

Discussions began informally in February when Davis and Brown met for lunch, something they had done regularly in recent years. While talking about MainSource’s recent acquisitions, designed to get the company into more urban markets, and a looming regulatory threshold for First Financial, it “became clear” to the executives “that they had complementary views and strategies” on many topics, the filing said.

A month later, Davis and Brown discussed organizational structure, agreeing that First Financial should have a blend of directors and management from both companies. A mutual confidentiality agreement was signed in mid-April.

Retaining key MainSource executives was another important part of the deal. MainSource’s board had already decided that it had little intereste in a stock-based transaction “without MainSource management having a role in the management of the combined firm,” the filing said.

By early May, Davis, Brown and several executives from both companies held more discussions. At this point, MainSource’s board had asked Brown to outline an initial process for due diligence, which included detailed analysis of strategic objectives; an appraisal on how a deal would impact employees and Greensburg; and financial, credit, regulatory and legal reviews.

Davis and Brown discussed the decision to divide duties during a May 22 meeting. First Financial on June 5 proposed an all-stock deal that valued MainSource at $34.86 to $36.12 a share and included multiple options for management structure, including the model the companies eventually adopted, and a pledge to keep jobs and commit funds to Greensburg.

MainSource’s board considered the proposal, along with the “additional resources needed to stay competitive in technology and the creation of a larger platform with which to grow shareholder value,” the filing said. Directors pressed First Financial to include pricing protections, a “more definitive” commitment to Greensburg and a management structure that named Brown as the next president and CEO.

The companies continued to make progress during the summer, with Davis attending the executive session of MainSource’s June 26 board meeting to discuss the deal’s advantages and benefits. By mid-July, First Financial had proposed a fixed-exchange ratio that valued MainSource at $38.23 a share and a plan to appoint six MainSource directors to its 15-member board.

Each company’s board unanimously voted to approve the merger during July 25 meetings. The deal was announced after the markets closed that day.

The deal, which is expected to close early next year, priced MainSource at 272% of its tangible book value.

The transaction will push First Financial above the $10 billion-asset threshold where it faces mandatory stress testing and caps on interchange fees, among other things.

First Financial said it expects the deal to be 5% accretive to 2018 diluted earnings per share and 9% accretive the next year, excluding $63 million in merger-related charges. Those estimates include an expected $12 million in lost revenue tied to the Durbin amendment’s cap on interchange fees and $2 million of added annual regulatory and compliance costs.

"By taking the best of both banks, we believe that the combined company will be even more effective in meeting the lending, economic development and financial education needs of the communities we serve," Davis said in announcing the deal.

First Financial also disclosed in recent regulatory filings that it has offered jobs to three MainSource executives: James Anderson, currently chief financial officer; Karen Woods, corporate counsel and chief risk officer; and Chris Harrison, chief consumer banking officer.

The company said Anderson will become its chief financial officer when the deal closes. John Gavigan, First Financial’s current CFO, will become chief administrative officer.

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