First Bancshares in Hattiesburg, Miss., took advantage of a second window to buy Heritage Southeast Bancorp. in Jonesboro, Ga.
The $6 billion-asset First agreed on July 27 to buy the $1.7 billion-asset Heritage Southeast in a deal valued at $207 million.
Hoppy Cole, First’s president and CEO, actually met with Leonard Moreland, Heritage Southeast’s CEO, in late January 2021 to discuss a deal, according to a regulatory filing associated with the pending merger.
While they executives agreed to another meeting, it never happened because Heritage Southeast agreed on March 31, 2021, to sell to VyStar Credit Union.
The filing provides a full assessment of how the VyStar and First deals came together for Heritage Southeast.
VyStar initially reached out to Ken Lehman, a large Heritage Southeast investor, in October 2020 to indicate interest in buying the company’s bank. VyStar and Heritage Southeast began having more conversations.
While Cole and Moreland agreed to reconvene in April after each bank had completed their first quarter, the VyStar agreement derailed that talk.
“Cole reached out to Moreland to congratulate him on the announcement, and both parties wished the other the best,” the filing said.
As VyStar and Heritage Southeast struggled to gain regulatory approvals, they on several occasions agreed to extend the termination date for the deal.
As delays persisted, various suitors, including First, approached Heritage Southeast to determine if the deal would receive regulatory approval and to indicate potential interest it did not close. Due to an exclusivity requirement with VyStar, Moreland indicated that his bank was continuing to work diligently to obtain the necessary regulatory approvals.
By March 2022, VyStar and Heritage Southeast had reached an agreement to extend the deadline to June 30, allow either party to terminate the deal if regulatory approval didn’t happen by April 30, and let the bank seek interest in an alternative transaction.
On April 1, Heritage Southeast contacted a few banks, including First. Heritage Southeast’s investment bank would subsequently reach out to 35 potential buyers in May. Eight, including First, signed non-disclosure agreements.
Lehman and Cole met at First’s offices on May 18 to discuss an initial preliminary term sheet.
Three banks submitted nonbinding indications of interest on June 6. First’s proposal valued Heritage Southeast at $206.9 million. A larger Southeastern bank proposed paying $178 million to $196 million, while a smaller suitor offered $202 million. Each proposal required an end to the VyStar agreement before executing an indication of interest.
On June 8, Heritage Southeast’s board unanimously authorized management to terminate the VyStar agreement and negotiate with First. Heritage Southeast’s board asked First to submit its best and final proposal; First agreed to increase the fixed exchange ratio.
Heritage Southeast and VyStar terminated their agreement on June 15. The next day, Heritage Southeast and First executed a non-binding indication of interest.
From June 16 to July 27, Heritage Southeast and First prepared, exchanged drafts and negotiated the terms of the merger agreement. First’s board approved the merger on July 21, while Heritage Southeast’s special committee and board unanimously backed it on July 26. The deal was announced on July 27.
The deal, which is expected to close in the fourth quarter or early next year, priced Heritage Southeast at 181% of its tangible book value.
First said the deal should generate double-digit earnings accretion once cost savings kick in. It should take less than three years for First to earn back the less than 8% dilution to its tangible book value.
First plans to cut about 30% of Heritage Southeast’s annual noninterest expenses, or $48.5 million. The company expects to incur $26 million of merger-related expenses.
Moreland will become First Bancshares’ Georgia president. He will receive a $315,000 base salary and is eligible for a bonus of up to 10% of his base salary.