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Equity Bancshares doubles down on dual M&A deal-making

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Equity Bancshares doubles down on dual M&A deal-making

Equity Bancshares Inc., the fast-growing Wichita, Kan.-based community bank that ranks among the most active in the merger-and-acquisition arena this year, said Dec. 18 it would buy two banks at once in an effort to gain scale and expand its central U.S. footprint.

The targets — Liberal, Kan.-based Kansas Bank Corp. and Blue Springs, Mo.,-based Adams Dairy Bancshares Inc. — together would give Equity nearly $440 million in assets, as well as entrance to southwest Kansas and more heft in suburban Kansas City, Mo.

Equity plans to close the deals simultaneously in the second quarter of 2018.

The announcement of the two deals, with a combined value of $60.9 million, follows a similar pair of moves earlier this year. In July, Equity announced it would buy two small banks in Oklahoma. It closed both of those acquisitions in November. It closed another bank deal earlier in the year, as well.

Though uncommon, Equity Chairman and CEO Brad Elliott is confident in the company's ability to close two deals at once, noting that it successfully brought together the two Oklahoma deals in roughly four months without complication.

While the two deals come at the same time, "each was developed as a separate transaction," Elliot said during a call with analysts to discuss the acquisitions.

The Kansas Bank deal, in southwest Kansas, carries an aggregate transaction value of about $45.1 million. The acquisition is expected to prove accretive by 6 cents to 2018 earnings per share and by 10 cents to 2019 EPS. Equity expects to earn back 1.8% dilution to tangible book within 2.8 years.

The Adams Dairy deal, in suburban Kansas City, Mo., carries an aggregate transaction value of about $15.8 million. The transaction is projected to be accretive to EPS by 3 cents in 2018 and by 5 cents in 2019. Equity said it expects to earn back 0.5% dilution within 2.7 years.

Investors typically favor earn-back periods shorter than four years. But shares of Equity slipped modestly in morning trading the day of the deal announcement. Despite Equity's established M&A history, investors showed some initial caution on the heightened level of work involved in managing multiple deals.

"With two deals at once, simply from a probability standpoint, it also does increase the chances of regulators finding a skeleton in the closet" at one of the targets, Mike Matousek, a trader at U.S. Global Investors Inc., said in an interview. Investors "get a little cautious when you have a lot going on at the same time."

John Adams, managing director of M&A at Sheshunoff & Co., which advised Kansas Bank, said in an interview that, for the buyer, working two separate deals at once does add a layer of complexity, as the management team's attention is divided among multiple fronts. "There is a challenge there," he said.

That noted, however, he said that from his client's view, Equity demonstrated that it had the expertise, resources and financial strength to handle both deals. It had, after all, just successfully completed dual deals, he said. Adams also said that the buyer confirmed it had effectively communicated its latest M&A plans to its regulators, and that there were no signs of pending hiccups or delays on the regulatory front.

"Clearly," Adams said, Equity leaders "have proven they can do this."

Adams added that Equity has been pursuing multiple deals at once primarily because most of the sellers within its footprint — Kansas, Missouri, Oklahoma and Arkansas — are small community banks. Each on their own might not be enough to move the needle for Equity. But, he said, two small deals at once amount to a sizable bump in scale. Given its success so far on the dual-deal front, Adams said, "I wouldn't be surprised if they did this again."

Following closing of the two deals announced this week, Equity expects to have about $3.5 billion in assets, $2.3 billion in loans and $2.8 billion in deposits.