Situation
Merchants Bancshares, Inc. (Nasdaq: MBVT), with $1.8 billion in total assets and 32 branches statewide, is the largest community bank headquartered in Vermont. Merchants has an extremely strong and low cost deposit base, with 41% of its total deposits being non-interest bearing, and its cost of interest-bearing deposits of 33 bps, and cost of total deposits of 19 bps. The Company is a successful commercial lender in its home state, and has publicly stated its desire to expand into adjacent growth markets to utilize its low cost funding base and deploy its liquidity with additional commercial loan growth. Its publicly stated criteria for M&A targets included commercial-focused banks, attractive growth markets, a strong management team that will stay on to grow the business, and targets of reasonable size to moderate integration risk.
Solution
On April 27, 2015, Merchants announced the acquisition of NUVO Bank & Trust Company of Springfield, MA, a $162 million asset, one branch commercial bank. The transaction closed on December 4, 2015. The purchase price of $21.8 million equates to 133% of tangible book value, 52x LTM earnings and a core deposit premium of 8.5%, and consideration is in the form of 75% stock and 25% cash. The greater Springfield market has undergone significant change of late, allowing for the prospect of meaningful growth for NUVO in excess of its historical performance with the increased lending limit, access to funding and broader product set of Merchants. NUVO will continue to operate as a uniquely branded division of Merchants Bank. Dale Janes, the CEO of NUVO, and Jeff Sattler, President of NUVO, have signed employment contracts to remain with Merchants, and Donald Chase, Chairman of NUVO, will join the boards of directors of Merchants Bancshares and Merchants Bank following completion of the transaction.
Measures of Success
The acquisition of NUVO meets all of the previously stated acquisition criteria of Merchants. The transaction is focused on growth and revenue enhancement rather than cost cutting to achieve a competitive return for shareholders, with an internal rate of return projected in excess of 18%.
Griffin advised Merchants on the transaction and rendered a fairness opinion to its Board of Directors.
For more information on this transaction, contact Richard L. Quad, Senior Managing Director, at 646.254.6387 or Stacey V. Weikel, Vice President, at 610.478.2015.
