Old National Bancorp said Thursday it would acquire the $3 billion-asset CapStar Financial Holdings in Nashville in an-all stock deal valued at $344.4 million.
The acquisition, expected to close in the second quarter of 2024, would give the $49 billion-asset Old National $2.3 billion of loans and $2.8 billion of deposits. It would gain a top-10 deposit market share presence in the Nashville metropolitan area. It would also pick up CapStar's footprint in Asheville, North Carolina.
Old National entered the Tennessee market in 2022, when it introduced a Nashville-based high-net-worth wealth management operation there. Shortly after that, it added a commercial banking team in Tennessee's largest market.
The combination with CapStar is "a natural extension of our growth strategy," Old National CEO Jim Ryan said in a release announcing the deal. "By establishing a full-service banking presence in Nashville and several other strong Tennessee and North Carolina communities, we can more fully serve our existing Nashville-area clients while also introducing our client- and community-focused brand of banking to the surrounding region."
During a call with analysts, Ryan said the deal would help Old National "grow even faster" in Nashville than it could have organically. He views the market as a pillar of economic strength and long-term lending opportunity, given its steady growth. Nashville's population is projected to grow at a 6% rate between this year and 2028, three times greater than the pace of national growth. Ryan said Nashville could also serve as a springboard for broader expansion in the Southeast.
"We will be well-positioned to gain market share" in the region, he said.
Evansville, Indiana-based Old National is
Ryan said Old National is open to future acquisitions and expects to pursue ongoing expansion. He said the CapStar deal developed relatively quickly after the seller approached Old National this year. Asked on the call why CapStar chose to sell, Ryan said it saw an opportunity to gain scale and efficiency by joining a much larger company.
"It's not much harder than that," he said.
Old National estimated the acquisition would prove 5% accretive to analysts' consensus 2025 earnings per share estimate. It expects to earn back 1.8% tangible book value dilution within two years. Investors tend to prefer earn-back periods of three years or less.
Bank deal activity overall has been
But M&A momentum has mounted some in recent months as more buyers figure out how to navigate the regulatory maze and as the economy shows fresh signs of vigor, said Mike Matousek, head trader at U.S. Global Investors. U.S. gross domestic product grew at a 4.9% annual rate in the third quarter, much stronger than the 2.1% rate in the prior quarter, the Commerce Department said Thursday.
"Everybody was worried about recession," Matousek said. "We apparently aren't anywhere near that."
Through the first nine months of 2023, there were 79 bank M&A transactions announced, which was down notably from 122 in the same period last year, according to S&P Global. Aggregate deal value during that same time span declined to $3.39 billion from $6.36 billion a year earlier.
That noted, 34 deals were announced in the third quarter, up notably from the first and second-quarter totals of 20 and 25, respectively, according to S&P Global. The aggregate deal value swelled to $2.76 billion in the third quarter, compared to the first and second quarter's combined aggregate deal value of $630 million, the firm said.
