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Long road took NJ bank to 1st Constitution deal

New Jersey Community Bank had been suffering substantial losses since 2013. In light of subsequent consent orders and expressions of interest from several would-be buyers, its board in November 2015 engaged the services of Sandler O'Neill & Partners LP.

Sandler reached out to 14 potential partners, of which five submitted indications of interest. Their initial proposals ranged from $3.95 to $7.00 per common share. The highest offer was for a recapitalization, under which existing New Jersey Community shareholders would keep a minority interest in the Freehold, N.J.-based company. That offer remained in the lead even after further due diligence and updated proposals in February 2016. The investor behind it, however, ultimately withdrew, believing the transaction was unlikely to secure regulatory approval.

The bank's board then went with a cash offer of $5.45 per share. But those talks also fell through, after a dispute over the lease of its main office. New Jersey Community ended up suing its landlord, which happened to be a company controlled by two board members. The board, realizing a merger would be difficult until the lawsuit was resolved, decided to end its engagement with Sandler in June 2016.

It also began considering a capital raise, with one shareholder having already agreed to make a substantial investment. But the planned capital offering was canceled in the spring of 2017, after the state regulator expressed ownership concentration concerns.

Around the same time, a group of investors reached out regarding a possible recapitalization. And Cranbury, N.J.-based 1st Constitution Bancorp contacted New Jersey Community to negotiate an acquisition. The board in July 2017 decided it needed a new financial adviser and retained Boenning & Scattergood Inc.

The recapitalization group said they planned to invest $15.0 million, at a price of $3.50 per share. 1st Constitution's first offer, meanwhile, valued New Jersey Community at $4.00 per common share. This was increased in August to $4.29 per share, in a mix of cash and stock.

New Jersey Community decided to negotiate exclusively with 1st Constitution. And in September, it settled its case against the landlord.

1st Constitution, however, lowered the offer back to $4.00 per share following due diligence. It also required that part of the merger consideration be held in escrow, pending the resolution of litigation brought against New Jersey Community by its former chairman and CEO. New Jersey Community's board agreed to the new terms. On Nov. 6, the directors voted unanimously in favor of the merger agreement.