First Mid Bancshares in Mattoon, Illinois, said it would buy Blackhawk Bancorp in Beloit, Wisconsin, in an all-stock deal valued at $90.3 million. It marked a rare acquisition announcement in a sluggish year for deal activity — with more impediments to merger activity after multiple bank meltdowns in March.
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The $1.3 billion-asset Blackhawk has operated in Wisconsin since 1881 and in northern Illinois since 1996. First Mid currently has branches in Illinois, Missouri and Texas. It also has a loan production office in Greater Indianapolis, Indiana. In addition to entering Wisconsin, First Mid would add locations in Chicago's suburbs. Its footprint would grow to 82 branches.
Joe Dively, First Mid's chairman and CEO, said the two companies had discussed a possible combination "for a number of years." Despite the
"While there is volatility in the equity markets for banks today, the discussions which led to today's announcement started a long time ago," Dively said in the Tuesday release. "We have partnered with Blackhawk on many projects over the last several years and could not be more confident in the cultural and strategic alignment."
Still, Dively said the acquisition would strengthen First Mid against market disruptions, notably including customer concerns about deposit insurance following the failures.
Blackhawk reported a 65% loan-to-deposit ratio as of Dec. 31, with only 8.5% of its deposits uninsured, First Mid said in the release. Additionally, Blackhawk's $444 million available-for-sale securities portfolio would be marked to fair value through purchase accounting when the deal closes, providing another source of liquidity.
The deal, projected to close in the second half of this year, priced Blackhawk at 138% of its tangible book value. S&P Global Market Intelligence valuations for bank targets in the Midwest region between March 21, 2022, and March 21 of this year averaged 146% of tangible book.
The acquisition is expected to be 22% accretive to First Mid's 2024 earnings per share, excluding one-time transaction expenses. The buyer said it would need just under two years to earn back an estimated 7.7% dilution to its tangible book value.
First Mid said it expects to generate cost savings of approximately 31% of Blackhawk's noninterest expense base. On the revenue side, it sees opportunity to provide agriculture lending expertise and treasury management services as complements to Blackhawk's small business lending platform.
Analyst Jeff Rulis of D.A. Davidson applauded the deal, even as it arrives during a period of industry tumult.
"Feathering in an M&A announcement in the current volatile tape is bold," Rulis said. But the acquisition provides "meaningful deposit benefits, added scale and footprint diversity."
Mark Fitzgbibbon, head of research at Piper Sandler, noted that already slow deal activity in 2023 was expected to slow further, given the uncertainty imposed by the recent bank failures and
Over the past two weeks, "we saw two large U.S. banks" face runs "on their deposits and each were taken over by the government. We think the ramifications for the industry may be profound, and we also think this will alter the trajectory of M&A activity meaningfully," Fitzgibbon said.
Under the weight of elevated regulatory scrutiny, U.S. banks announced 168 M&A deals last year, down from 205 in 2021, according to S&P Global. Only six deals were announced in January of this year, the most recent month for which deal totals are available. It marked the lowest deal tally for the first month of the year since 2009. Only a few deals were announced last month and through the first half of March.
"In the short term, we would expect M&A activity to slow" further, Fitzgibbon added. "During a crisis, naturally companies tend to turn inward, taking sort of a bunker down approach. They tend to initially be less interested in taking on another institution's problems. Of course, there are always a few banks that are supremely confident in their position and want to capitalize, but they are often few and far between in the early innings of a crisis."
Todd James, chairman and CEO of Blackhawk, expects his bank's decision to sell to First Mid will prove beneficial regardless of the timing.
"This has been a very long process culminating in today's announcement, which has reinforced our belief in the strength of these two organizations and the opportunities it will provide once combined," James said in the Tuesday release. "Our communities, customers, employees and shareholders will benefit from access to a larger banking organization offering larger loan limits and a broader array of services, including wealth management, trust, insurance and agricultural services."
Janney Montgomery Scott and ArentFox Schiff advised First Mid. Piper Sandler and Reinhart Boerner Van Deuren advised Blackhawk.
