When four is a charm in bank M&A
Bank buyers have to be patient and willing to stomach complicated negotiations to get things done.
First Busey’s talks with First Community Financial Partners — which led to a $246 million deal in February — are a prime example.
The $5.4 billion-asset First Busey is in the central Illinois town of Champaign, while First Community is in Joliet, 40 miles southwest of Chicago. First Busey was not necessarily looking to buy banks that close to Chicago, known as a fragmented but intensely competitive market. Still, its management had been monitoring activity in the area while it evaluated targets farther away from the city, according to a recent regulatory filing tied to the proposed merger.
The $1.3 billion-asset First Community caught its eye during the research. The CEOs of the two banks met, and First Busey executives stayed in pursuit even after First Community made a pair of expansion moves following that initial get-together.
Van Dukeman, the head of First Busey, was introduced to Roy Thygesen, his counterpart at First Community, in late June. Within weeks, several First Community directors had met with members of First Busey’s board to discuss business conditions and the state of bank consolidation.
Around that time, First Community hired a five-person lending team in Chicago. The company had also bought First Mazon Bancorp, which had three branches in the city, and was in serious talks about another M&A deal in the area.
Those developments did not deter First Busey, which asked for a confidentiality agreement in late October. One was reached on Nov. 3.
About a month later, First Busey sent an offer of $12.25 to $12.75 a share, with 90% of the consideration in stock. The offer represented a premium of at least 14.5% to First Community’s stock price at the time.
First Community, after discussing the terms with its investment adviser, determined that the offer was inadequate, the filing said. Still, executives at First Community continued talks, providing First Busey with recommendations for revenue and cost-cutting opportunities during a Dec. 22 meeting.
First Busey raised its offer on Dec. 27 to $12.98 to $13.45 a share with the same mix of stock and cash as before. The amended offer represented a premium of at least 20.2% to First Community’s stock price.
First Community also rejected that offer, while expressing a need for protections against a decline in First Busey’s stock price if a potential deal was reached. First Busey raised its offer to $13.61 a share and proposed a clause to let First Community terminate a deal if First Busey's common stock price fell 20% compared with the day a deal was reached and relative to an unnamed bank-stock index.
That was enough to keep the talks going and allow participants to conduct more due diligence.
First Community determined in early January that the price was sufficient, but the board was not thrilled with the protections against market volatility that First Busey had offered. The banks agreed to adjust the exchange ratio if the price of First Busey's common stock changed by more than 22.5% from its price when a deal was announced. They also agreed to fix the per-share cash portion of the consideration at $1.35, or about 10% of the implied value on Dec. 29.
Each bank’s board approved the deal on Feb. 6, and an announcement was made later that day.
The filing also made it clear that First Busey wanted Thygesen to stay after the deal closed, noting that his continued employment “is important to the success of the post-transaction company.”
Thygesen, under terms of his employment agreement with First Busey, would receive an annual base salary of $350,000 to serve as commercial market president for northern Illinois. He would also be eligible for a minimum bonus of $200,000 when those payments are made next year.
The filing also disclosed that Thygesen would be entitled to a nearly $1.2 million retention bonus that would be paid on the first payroll period after the deal closes. The executive also agreed to a one-year noncompete clause should he leave First Busey.