While the First Busey Corp.'s acquisition of CrossFirst Bankshares Inc. is not a merger of equals, it bears similar characteristics to one.
The target received a low premium in the all-stock deal, but its location in Leawood, Kan., will become the new holding company headquarters. Nearly 40% of the board seats will come from CrossFirst, and the company's leader, President and CEO Mike Maddox, has been named the eventual successor of the combined company. The acquisition will nearly double the size of First Busey, which had $11.97 billion in assets, and that is slated to expand to about $20 billion on a pro forma basis.
The deal is a "near [merger of equals]" that will favorably augment First Busey's growth profile, D.A. Davidson analyst Jeff Rulis said in an Aug. 28 research report.
Analysts expect the transaction to create opportunities for stronger growth on both sides of the combined company's balance sheet with Champaign, Ill.-based First Busey's low-cost deposit base and CrossFirst's track record of strong loan growth in attractive Southwestern markets.
"It's the complementary nature of it that makes it more of [a merger of equals] type of acquisition," First Busey Chairman and CEO Van Dukeman said in an interview. "Both companies bring something to the table here."
CrossFirst CEO next in line
As part of the merger agreement, the combined company's 13-member board will seat eight members from First Busey and five from CrossFirst, according to a press release. Additionally, CrossFirst's Maddox will take over as CEO about 12 to 18 months after closing. The succession plan is a "unique" benefit of the transaction for CrossFirst relative to sellers in other transactions, Janney analyst John Rodis said in an interview.
"While I wouldn't necessarily call this a merger of equals ... there are some benefits, I think, for the CrossFirst franchise relative to a lot of deals with the CEO ultimately taking over," Rodis said.
Succession planning was not the purpose of the transaction, but a natural benefit of it, Dukeman said. Even so, given he is 65 and has led First Busey for more than 25 years, succession is an "important" concern for the company's board, the CEO said. Dukeman expects to remain as CEO until as late as June 2026, which he said will give Maddox a long runway to get fully prepared to take over the company.
"There's such strong people on the other side, you've got some nice succession benefits," Dukeman said. "We're fortunate that we've got a merger here that gives us a deeper bench."
The transaction is First Busey's largest to date at a total deal value of $919.17 million, or $18.28 per share, at announcement, according to S&P Global Market Intelligence data.
Earnback in a flash
The tangible book value dilution from the acquisition is just 0.6% and the expected earnback period, at just six months, is "very short," Raymond James analyst Daniel Tamayo said in an interview.
"It's a deal that was done at slightly below market price, so you're just not going to have a ton of dilution in the deal," Tamayo said. "I think the financial side makes sense for Busey."
The deal premium First Busey paid to acquire CrossFirst was 0.26% below the seller's stock value a day before the transaction, according to S&P Global Market Intelligence data. Also contributing to the short earnback period is the expected earnings per share accretion of 20% in 2026 for the first full year of combined operations.
First Busey has been "extremely disciplined" in the pricing of its transactions, Dukeman said, citing the company's previous acquisition of Merchants and Manufacturers Bank Corp. which also had an earnback period of less than a year.
"I'm always concerned about diluting our book value," Dukeman said. "It's also very important to us that the earnings accretion will be strong."
Complementary loans and deposits
Another benefit of the deal is that First Busey's "strong" credit quality and core deposit base will complement CrossFirst's loan growth engine, which should lead to a more profitable, faster-growing bank, Tamayo said.
By acquiring CrossFirst, First Busey is expanding its reach into markets such as Dallas, Denver and Phoenix, which have a more attractive growth profile than the company's current Midwestern markets, Stephens analyst Terry McEvoy said in an interview. CrossFirst's strength has been organic growth and the company's loan growth has consistently outpaced that of First Busey, another Stephens analyst, Matthew Olney, said in an interview.
"They've consistently grown loans at a low double-digit level in a good year and then a slower year, maybe kind of a high single-digit level," Olney said.
At the same time, non-interest-bearing deposits accounted for 28.40% of First Busey's $9.98 billion in total deposits at the end of the second quarter, compared to just 14.59% of CrossFirst's $6.73 billion in total deposits, according to S&P Global Market Intelligence data. CrossFirst's deposit franchise is largely commercial, while First Busey has more of a retail deposit base, Olney said.
As such, First Busey can use its low-cost deposit base to fund loan growth in those markets, McEvoy said. First Busey's wealth management business and regional bank strategy have been successful in selling commercial loans and deposits, he added.
"That high level of customer service can also be leveraged in these newer markets," McEvoy said.
Even so, there have been some concerns about CrossFirst's credit quality given the pace of the company's loan growth, Tamayo said. For example, CrossFirst's commercial real estate loans is equivalent to 307% of the company's risk-based capital compared to 192% for First Busey and an expected 250% for the combined company at close, according to a company slide deck.
The combined company's commercial real estate concentration would not be high relative to peers, but commercial real estate remains a "hot button" regulatory issue and could be a stress point that investors pay attention to, D.A. Davidson's Rulis wrote in his Aug. 28 research note. Still, Busey's credit quality and reserves as well as the size of the combined company's balance sheet should protect it from downside credit risk, Tamayo said.
