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First Merchants Corp. to acquire Arlington Bank

Muncie, Ind.-based First Merchants Corp. agreed to acquire Arlington Bank of Upper Arlington, Ohio, in a deal valued at around $75.8 million, based on First Merchant's Jan. 24 closing price of $36.46 per share.

Under the deal terms, Arlington Bank will merge into First Merchants' unit, First Merchants Bank. Shareholders of Arlington Bank will receive 2.7245 First Merchants' common shares for each Arlington share held. SNL calculates the price to be 215.9% of book and tangible book and 19.1x earnings, on an aggregate basis. It is also 29.15% of deposits and 24.77% of assets and carries a tangible book premium-to-core deposits ratio of 19.79%.

For comparison, SNL's valuations for bank and thrift targets in the Midwest between Jan. 25, 2016, and Jan. 25, 2017, averaged 128.95% of book, 132.10% of tangible book and had a median of 18.32x last-12-months earnings, on an aggregate basis.

First Merchants expects the deal to be accretive to earnings during the first full year, with a tangible book value earnback of three years. Cost savings are expected to total 35% of Arlington Bank's noninterest expense.

As of Sept. 30, 2016, First Merchants had $7.02 billion in assets, while Arlington Bank had $305.4 million. Upon closing, the combined companies will have $7.4 billion in assets and 109 locations, a news release said. First Merchants will expand in Franklin County, Ohio, by three branches and be ranked ninth with a 1.08% share of approximately $53.45 billion in total market deposits.

The transaction is set to close mid-2017, subject to regulatory and Arlington Bank shareholder approvals.

Sandler O'Neill & Partners LP is acting as financial adviser to First Merchants, while Bingham Greenebaum Doll LLP is the company's legal adviser. Boenning & Scattergood Inc. is acting as Arlington Bank's financial adviser, while Vorys Sater Seymour and Pease LLP served as the bank's legal adviser.

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