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SmartFinancial, Entegra Financial merging in a $158.2M all-stock transaction

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SmartFinancial, Entegra Financial merging in a $158.2M all-stock transaction

Knoxville, Tenn.-based SmartFinancial Inc. and Franklin, N.C.-based Entegra Financial Corp. will combine in a merger of equals, under a definitive merger agreement signed between them.

Entegra Financial unit Entegra Bank will merge with and into SmartBank, a unit of SmartFinancial, pursuant to a separate agreement that the two banks entered.

The $4 billion-asset bank holding company formed as a result of this transaction will be headquartered in Knoxville, Tenn. It will have 47 branches across Tennessee, North Carolina, Alabama, Georgia, South Carolina and Florida.

Under the terms of the agreement, each Entegra common share will be converted into the right to receive 1.215 SmartFinancial common shares before the merger. The options to purchase Entegra common shares will be converted into options to purchase SmartFinancial common shares. The exercise price and the number of shares under each option will be adjusted to reflect the exchange ratio of 1.215.

The deal is expected to close mid-2019.

On an per-share basis, SNL calculates that the deal value is 98.3% of book, 119.4% of tangible book and 23.8x earnings. It is also 9.33% of assets, 12.40% of deposits and the tangible book premium-to-core deposits ratio is 2.53%.

SNL valuations for bank and thrift targets in the Southeast region between Jan. 15, 2018, and Jan. 15, 2019, averaged averaged 162.68% of book, 197.10% of tangible book and had a median of 22.57x last-12-months earnings, on a per-share basis.

The deal has a one-day discount of 1.82%, based on Entegra's closing price of $22.77 as of Jan. 14, and a one-month premium of 13.19%, based on Entegra's closing price of $19.75 as of Dec. 14, 2018.

Holders of Entegra restricted stock units will be entitled to receive the consideration payable to Entegra common shareholders generally in respect of the Entegra common stock subject to the restricted stock units, and the restricted stock units will be fully vested at deal closing.

The transaction value is $22.36 per Entegra common share, or a total of about $158.2 million, based on SmartFinancial's common share price of $18.40 on Jan. 14, 2019. The deal is expected to be 20% accretive to earnings per share in the first full year. The tangible book value dilution is expected to be gained back in less than two and a half years.

Shareholders of Entegra will receive one nontransferrable contingent value right for each Entegra common share held immediately before the merger in case a certain ongoing dispute between Entegra and certain unrelated third parties has not been resolved, and the proceeds, if any, from the resolution of the dispute have not been paid out to Entegra's shareholders, prior to the merger in accordance with the terms of the merger agreement.

The contingent value rights, which will be subject to a separate agreement provided for by the merger agreement, will provide the holders a limited-time opportunity after the merger to participate in the after-tax net proceeds, if any, received as a result of the resolution of the dispute.

Billy Carroll and Miller Welborn, CEO and chairman of SmartFinancial, respectively, will continue as the combined company's president and CEO and chairman, respectively.

Members of Entegra will be integrated into the SmartFinancial executive team and board of directors. Entegra President and CEO Roger Plemens will be the combined bank's president for the Carolinas. Entegra CFO David Bright and COO Ryan Scaggs are expected to take up the same roles in the combined company.

The boards of the new company and the new bank will each have 17 members. Five Entegra directors are expected to join both boards. Directors not joining the boards will be invited to become members of a newly formed Carolina Advisory Board.

SmartFinancial will also make a $1 million contribution to SmartBank Foundation, a charitable organization, upon completion of the transaction. The allocation of these funds will be directed by recommendation of the Carolina Advisory Board to charities in the communities served by Entegra.

The combined company will operate 13 branches in North Carolina to be ranked No. 25 with a 0.23% share of approximately $366.48 billion in total market deposits; it will operate three branches in Georgia to be ranked No. 56 with a 0.12% share of approximately $250.20 billion in total market deposits; it will operate three branches in South Carolina to be ranked No. 57 with a 0.10% share of approximately $85.89 billion in total market deposits; it will operate three branches in Florida to be ranked No. 150 with a 0.02% share of approximately $586.29 billion in total market deposits; it will operate 17 branches in Tennessee to be ranked No. 19 with a 0.86% share of approximately $154.89 billion in total market deposits; and it will operate nine branches in Alabama to be ranked No. 31 with a 0.48% share of approximately $100.93 billion in total market deposits.

Banks Street Partners LLC was financial adviser and Butler Snow LLP provided legal counsel to SmartFinancial. Sandler O'Neill & Partners LP served as financial adviser and Hunton Andrews Kurth LLP provided legal counsel to Entegra.

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