What made a Georgia bank pivot from IPO to sale?
Brand Group Holdings in Atlanta likely would have pursued an initial public offering had it not negotiated a sale to Renasant in Tupelo, Miss.
Brand’s executives determined last summer that it would need to complete a private placement or go public by the end of 2018 to fund expected loan growth, according to a regulatory filing tied to the $2.4 billion-asset company’s planned sale. Brand’s total loans increased by 8% in the first quarter from a year earlier, to $2 billion.
The company also concluded at that time that it should also consider a merger of equals or an outright sale. Bartow Morgan Jr., Brand’s CEO, began interviewing investment banks in July.
The decision to first explore a sale led to an auction process, where the $10.2 billion-asset Renasant eventually agreed to buy Brand for $453 million. The deal is among the biggest bank mergers announced this year.
The takeaway is that banks, especially those in vibrant markets like Atlanta, should keep an open mind when considering ways to support growth and better serve shareholders and customers.
Renasant and Brand’s paths slowly began to cross late last year, the filing said. In October, Renasant and its investment bank included Brand on a list of Atlanta-area targets. Brand and its adviser put together a list of potential merger partners on Nov. 7; a day later Morgan met with Robin McGraw, who was Renasant’s CEO at the time.
While McGraw retired as CEO on May 1, he remains Renasant’s executive chairman. Mitchell Waycaster is now Renasant’s president and CEO.
Brand’s investment bank contacted five institutions, including Renasant, to gauge interest in a deal. Four of those banks expressed an interest in an acquisition; Morgan and two other Brand executives met the leadership of each institution in separate meetings that took place in late December.
Two of the potential bidders backed off by the end of last year, leaving only Renasant and an unnamed bank to pursue Brand. Each of the remaining suitors provided initial offers on Jan. 17.
Renasant’s first offer valued Brand at $450.9 million to $483.5 million. The filing never disclosed any of the other bank’s offers. Morgan had periodic meetings with the leaders of each bank through early February.
The filing noted that, while management continued to negotiate Brand’s sale, the company’s board continued to review a wide variety of options that included ways to raise capital.
Brand’s investment bank urged Renasant and the other bank to increase their offers. Renasant on March 9 raised its offer to $471.5 million. The other bank also revised its indication of interest by an undisclosed amount.
Each suitor was again urged to raise their bids. Renasant on March 14 went up to $484.8 million; the other bank “elected not to enhance its proposal,” the filing said. As a result, Renasant and Brand entered into exclusive negotiations.
The companies reached an agreement on March 28. Renasant will pay $452.9 million for Brand in a deal set to close in the third quarter. (Renasant’s stock fell by 6.1% between the day of its last offer and when the deal was reached.) The deal priced Brand at 224% of its tangible book value.
Brand was also required to sell about $55 million in classified assets before the deal closes. As of June 1, it has sold $13 million of those assets at a loss of $2.8 million, the filing said.
Renasant said the deal should provide double-digit accretion to its earnings per share once costs cuts are made. It should take less than three years to earn back any dilution to Renasant's tangible book value.
Morgan, who is set to become Renasant’s chief commercial banking officer, is also in line to receive $21.7 million when the deal closes, pending shareholder approval. The amount includes $9.9 million in cash payments associated with cancelled stock options and a $2.7 million change-in-control payment.
Robert Cochran, Brand’s president and chief operating officer, and Richard Fairey, the company’s chief financial officer, are each set to receive $7.4 million. Cochran will become Renasant’s retail banking officer, while Fairey will serve as president of the Georgia commercial banking group.