Business Context and Reporting Period
Company: Nicolet Bankshares, Inc. (Nicolet)
Filing Date: November 3, 2016 (Report Date: November 4, 2016)
Event: Entry into a Material Definitive Agreement (Merger) with First Menasha Bancshares, Inc. (First Menasha).
Nicolet and First Menasha have entered into an Agreement and Plan of Merger dated November 3, 2016. Under the agreement, First Menasha will merge with and into Nicolet. The surviving entity will be Nicolet National Bank, with all First Menasha branches rebranding to Nicolet National Bank. The transaction is expected to close in the second quarter of 2017, subject to shareholder approval and regulatory conditions.
Key Financial Metrics and Transaction Value
Transaction Consideration: First Menasha shareholders may elect to receive cash of $131.50 per share and/or 3.411 shares of Nicolet common stock per share of First Menasha stock. The total consideration mix is capped between 25% cash/75% stock and 40% cash/60% stock.
Valuation: Based on Nicolet's closing price of $38.09 on November 3, 2016, the total merger consideration is valued at approximately $76.6 million. This represents a 1.65 multiple of First Menasha's tangible book value as of September 30, 2016.
Combined Company Projections (as of Sept 30, 2016):
- Total Assets: $2.7 billion
- Deposits: $2.3 billion
- Loans: $1.9 billion
Financial Impact: Nicolet estimates high single-digit earnings per share (EPS) accretion in 2018 (excluding merger charges) and an estimated tangible book earn-back period of less than 5 years.
Material Changes and Terms
Exchange Ratio Mechanics: The exchange ratio is fixed unless Nicolet's stock price exceeds $43.55 or falls below $33.55, at which point the ratio becomes floating based on specific formulas defined in the agreement.
Termination Fee: First Menasha is obligated to pay a termination fee of $3.25 million to Nicolet if the agreement is terminated under certain specified circumstances.
Board Composition: Upon closing, two members of First Menasha's board will be appointed to the boards of Nicolet and Nicolet National Bank.
Restricted Stock: Outstanding First Menasha restricted stock awards will automatically vest and be cancelled immediately prior to closing in exchange for a cash payment of $131.50 per share.
Guidance, Outlook, and Risks
Outlook: Management anticipates cost savings, enhanced revenues, and a stronger market position for the combined company. The transaction is expected to be accretive to earnings in 2018.
Key Risks and Contingencies:
- Integration Risks: Potential difficulties in integrating operations, systems, and cultures, which could be more costly or time-consuming than expected.
- Customer Attrition: Risk of losing customers, deposits, or loans during the transition.
- Regulatory Approval: Closing is contingent upon receiving requisite regulatory approvals and a tax opinion confirming tax-free reorganization status.
- Shareholder Approval: The transaction requires approval by First Menasha shareholders.
- Market Conditions: Risks related to interest rate environments, credit risk, and economic conditions in the operating regions.
Investor Verification Checklist
- Verify the final cash/stock election ratio and any proration adjustments once the shareholder vote concludes.
- Confirm the receipt of all necessary regulatory approvals and the tax opinion regarding the tax-free reorganization status.
- Review the upcoming Form S-4 proxy statement/prospectus for detailed financial data and risk factors.
- Monitor the integration progress and the specific closure of the Nicolet branch at 2400 S. Kensington Drive, Appleton, which is scheduled to close upon consummation.
- Assess the actual EPS accretion in 2018 against the "high single-digit" estimate provided by management.