Home BancShares has struck a deal to buy Happy Bancshares, giving the Arkansas buyer a foundation in Texas and setting the stage for further deals in the Lone Star State.
Texas would bookend the bank’s footprint, with Florida on the eastern side. After the $919 million all-stock deal closes early in 2022, Home could “potentially acquire additional institutions over time,” John Allison, Home's chairman and CEO, said in a press release Wednesday.
The $6.3 billion-asset Happy, of Canyon, Texas, is privately held. Home, of Conway, Arkansas, is the parent of Centennial Bank.
“We are thrilled to have found such a quality bank to partner with to make this expansion a reality,” Allison said. Home is now in “two of the best growth markets in the U.S.” — Texas and Florida — and “should reap strong returns for our shareholders.”
Home has long been an acquisitive bank — it closed 10 bank deals over the past decade — but the Happy acquisition would mark its first since 2017. Allison effectively built the $17.6 billion-asset Home via dealmaking. But he also has eschewed transactions that dilute shareholders’ stakes in the company and require years to earn back the dilution — a common attribute of most bank acquisitions. Amid the low-interest rate environment of recent years, appealing targets had become more difficult to find, Allison said during past calls with analysts.
The Happy deal met Allison’s financial requirements.
The deal would be immediately accretive with no earn-back period, boosting earnings per share by 5.5% in 2022 and 9.2% for 2023, Allison said. The transaction is also expected to be accretive to book value per share and tangible book value per share. It is projected to generate cost savings of 33% of the target’s noninterest expense base.
Happy is based in the Texas Panhandle, but also operates in the South Plains of the state, as well as Dallas and Austin. Home has for several years targeted major metropolitan areas that are rapidly growing. That is the case for both Dallas and Austin, as well as other strongholds for Home including Miami, Orlando and Tampa in Florida.
With a combined $23.3 billion of assets, $13.4 billion in loans and $18.7 billion in deposits, Home would rank as one of the 75 largest banks based in the United States after the deal closes.
The deal “threads the needle as it provides attractive financial results” and “sound strategic rationale in a low-risk manner,” said Stephens analyst Matt Olney.
He noted, in particular, that Happy’s average loan yield stood at 5.80%. That is above Home’s 5.40%, which already tops the average of peers, Olney said.
Home “has refused to compete with aggressive pricing that doesn't drive reasonable risk/return trade-off,” Olney said, “so we're impressed and pleased to see Happy's loan yield at 5.80%.”
After the deal closes, Texas will represent 27% of Home’s deposits and 29% of its loans. With that foundation, Olney said, Home “appears well positioned for additional M&A in Texas.”
As part of the deal, Pat Hickman, Happy’s chairman, will join the Home board. Happy CEO Mikel Williamson will be on the combined bank’s executive team, while additional Happy executives will maintain leadership roles in Texas markets.
“Centennial Bank is one of the few banks that has grown even faster and stronger than Happy, and with a similar mix of serving both small towns and metropolitan areas, they check every box,” Hickman said in the press release.
After the merger, branches in Texas will be branded Happy State Bank, a division of Centennial Bank. Home will continue to operate as Centennial Bank in its current markets.
