This promising bank sold itself by acting like a buyer

Stonegate Bank in Pompano Beach, Fla., decided to sell itself after informally gauging interest from potential buyers and making some demands of the finalist.

At the request of CEO David Seleski, the $3.2 billion-asset company conducted a “soft market check” last fall that eventually led to an agreement to sell to Home BancShares in Conway, Ark. It is the fifth-largest bank M&A deal announced this year.

Seleski, during a Sept. 27 meeting with Stonegate’s executive committee, discussed a list of potential acquirers that could provide shareholders with access “to a larger and more diverse balance sheet,” according to a filing Tuesday tied to the proposed merger. Stonegate chose “a limited sales approach” to “avoid undue disruption to [its] ongoing operations, customer relationships and employee relations.”

By November, 22 banks including Home had been contacted by Stonegate’s investment bank. Potential acquirers that agreed to nondisclosure terms were given until Jan. 23 to evaluate Stonegate and make an offer. Home and an unnamed bank were the only parties that provided indications of interest.

Home initially offered $44 a share with a floating exchange ratio, though it quickly raised its bid to $48 after a discussion with Stonegate’s investment bank, the filing said. The other institution also proposed $44 a share, with a fixed exchange ratio, before increasing its offer by a buck. All of the offers included a mix of stock and cash.

Stonegate’s board decided on Jan. 25 to work with the $10.7 billion-asset Home.

While eager to discuss a merger, Stonegate expressed some concern about Home’s concentration of commercial real estate loans, the filing disclosed. CRE loans represented nearly 61% of Home’s total loans and 330% of total shareholders equity at March 31.

Home discussed plans to raise capital to reduce its commercial real estate concentration risk, while expressing confidence it could “close a transaction promptly, without the imposition of any unduly burdensome regulatory concerns,” the filing said.

Home recently issued $300 million in subordinated debt to push it below thresholds that typically trigger added regulatory scrutiny.

Due diligence by each company extended into March. Home, after direct negotiations with Stonegate directors and management, raised its offer to $49 a share, with stock making up 93% of the consideration. Home’s strong currency, along with a high percentage of stock, allowed the company to reach a deal that should be immediately accretive to its tangible book value.

Stonegate’s board approved the $778.4 million merger on March 26. Home directors signed off on the deal the following day. The deal is expected to close in the fourth quarter.

The filing also provides more details on Seleski’s employment agreement with Home.

Seleski, who will become a regional president, has a three-year contract with Home that will pay an annual salary of roughly $521,000, an amount that is consistent with his current pay. He will also receive 37,500 shares of restricted common stock that will vest on his third anniversary with Home.