North Carolina Emerges as Hotbed of M&A Chatter

Bankers in North Carolina have been talking up the potential for more consolidation for some time. A recent filing by Yadkin Financial (YDKN) in Elkin, N.C., confirms just how brisk those discussions have been.

Yadkin agreed in January to merge with VantageSouth (VSB) in Raleigh, N.C., in a $300 million deal that will create the state's biggest community bank. Before reaching an agreement, each bank had extensive conversations with other targets and suitors, Yadkin disclosed in its proxy filing tied to the merger.

VantageSouth, for instance, entered into "high-level discussions" with a community bank target during the second quarter of 2013 before issues discovered during due diligence sunk the potential for a deal. The $2.1 billion-asset company also spent three months last year considering a merger of equals with another bank. Those talks ended "due to material differences of opinion on key potential transaction terms," the filing said.

Yadkin drew considerable interest from aspiring consolidators, though the board determined last summer that they had no interest in selling to another bank. Rather, the $1.8 billion-asset company held high level discussions between late August and early September with VantageSouth and three other financial institutions about a merger of equals. Yadkin toured branches and held additional talks with VantageSouth and another unnamed bank before deciding to work with Scott Custer, VantageSouth's chief executive.

In early November, soon after American Banker and the Charlotte Observer ran stories about rumored talks between VantageSouth and Yadkin, a large regional bank in the Southeast showed interest in buying Yadkin, the filing said. After talking to Keefe, Bruyette & Woods about the unidentified regional, Yadkin's board decided to continue talking to VantageSouth.

The first informal discussion between Custer and Joseph Towell, Yadkin's CEO, took place in June during an investor conference at a West Virginia resort. They would talk again during conferences in Atlanta and New York. Further discussions among various executives occurred over at least four meals in various cities across North Carolina.

Yadkin's filing also discloses how each side jockeyed for position as negotiations progressed. Yadkin's directors originally wanted Custer to report to Towell, though they eventually dropped that condition in favor of a structure that allowed both men to report directly to the new company's board. A day after the concession was made, James Smoak, a retired Yadkin executive, resigned from the board due to "a disagreement related to the company's growth strategy."

Custer is set to become president and CEO of the new company, which will keep the Yadkin name. Towell will become executive chairman.

Yadkin successfully lobbied to increase the size of the company's board from 12 to 14. And VantageSouth, a day before the agreement was signed, insisted that one of its directors should chair the audit committee. The companies also worked through a last-minute tax issue tied to certain warrants held by investors in Piedmont Community Bank Holdings, VantageSouth's parent company.

Yadkin is considered the legal acquirer, though VantageSouth is considered the acquirer for accounting purposes. VantageSouth also conducted a $46.9 million private placement to new and existing investors, including members of its board, using the proceeds to exit the Treasury Department's Troubled Asset Relief Program.