Integrated Financial Holdings in Raleigh, N.C., is close to resolving litigation that it must address before selling to MVB Financial in Fairmont, W.Va.
The $3 billion-asset MVB agreed on Aug. 12 to buy the $425 million-asset IFH, the parent of the West Town Bank, for $98 million in stock. The deal will give MVB added heft in areas such as Small Business Administration and U.S. Department of Agriculture lending.
IFH must resolve a lawsuit filed in 2019 tied to alleged violations of the Real Estate Settlement Procedures Act (RESPA), according to a regulatory filing tied to the pending acquisition. The filing noted that IFH agreed in September to pay $10 million to settle the matter; a final fairness hearing is set for Jan. 18.
The filing provided more background on the proposed merger.
IFH, for instance, was in talks to buy a fintech when it began to have discussions with MVB. Conversations with the fintech, which focuses on SBA lending, began in October 2021 but ended in mid-March because the parties “were too far apart on their respective perceived valuations” of the fintech, the filing said.
IFH was also at a crossroads when it was introduced to MVB in early March. The company was considering a strategy of holding more government-backed loans on its balance sheet in a move that “would likely necessitate additional capital.”
Eric Bergevin, IFH’s president and CEO, first met with Donald Robinson, MVB’s president and chief financial officer, in Raleigh, N.C., on March 3. They discussed each bank’s background, strategic plans and growth opportunities. The companies executed a mutual nondisclosure agreement two weeks later.
Robinson and Larry Mazza, MVB’s CEO, met with several IFH executives in Raleigh on March 22. The msin focus was to get a deeper understanding of each organization. The group discussed IFH’s strategic plan for its USDA lending platform and its SBA lending team, along with MVB’s core values and business strategies.
A virtual data room opened on March 23 to allow for an exchange of non-public information.
MVB continued to explore other opportunities, meeting with another bank and a nonbank – each in the government-guaranteed lending space – in late March. The company also reviewed materials tied to another financial institution involved in government-guaranteed lending that was later sold in an auction process.
“MVB determined that none of these organizations had a strong enough strategic alignment,” the filing said. The company opted against pursuing deals.
During an April 2 meeting, IFH gave MVB an overview of its cannabis and hemp lines of business, “indicating that it would continue to analyze such lines of business. Executives also discussed synergies and IT systems.
Robinson and Bergevin discussed the structure of a potential deal and the financial models being used during an April 28 meeting. During this period, MVB performed an interest rate analysis on IFH’s loan and deposit portfolio.
IFH’s RESPA exposure was discussed during a May 2 meeting of the MVB board. The directors instructed management to continue to pursue a potential deal “provided that the RESPA litigation was settled,” the filing said.
The initial letter of intent, delivered on May 11, proposed an all-stock deal that valued IFG at $115 million. The letter also contemplated several IFH executives, including Bergevin, having management roles. IFH’s board authorized execution of the letter on May 19.
Mazza and Robinson were introduced to the full IFH board on June 16. After the meeting, the IFH board decided to seek a higher exchange ratio, in light of the declines in MVB’s stock price.
Though MVB agreed to increase the exchange ratio on June 20, the value of the deal fell slightly, to roughly $114.1 million.
An initial draft of the merger agreement was sent to IFH on July 18. The companies went back and forth over the agreement multiple times in July and August, with negotiations focused on price protection mechanisms and the termination fee.
IFH and MVB would agree to a termination fee equal to 4% of the transaction value, or roughly $3.9 million, and setting the threshold for the double-trigger termination right at a 17.5% reduction in MVB’s stock price relative to the NASDAQ Bank Index and MVB’s own historical stock price in the 20 trading days prior to the deal’s announcement.
IFH’s board unanimously approved the deal on Aug. 10; MVB’s board unanimously backed it the next day. It was announced on Aug. 12.
The deal, expected to close in the first quarter, priced IFH at 128% of its tangible book value. The transaction should be immediately accretive to MVB’s tangible book value and about 15% accretive to its 2023 earnings per share.
“Even in wet track market conditions, MVB continues to be opportunistic and look for deals that make sense to our business model,” Mazza said in a press release announcing the deal.
“This acquisition accelerates both our SBA and strategic lending partnerships growth vehicles to the benefit of our clients and shareholders,” Mazza added. “Both strong companies on our own, together we become a national leader in government guaranteed lending, specifically SBA and USDA lending.”
Bergevin will join MVB’s executive leadership team. Riddick Skinner, IFH’s executive vice president of government lending, and Mike Breckheimer, executive vice president of corporate strategy, will also join MVB.
The recent filing disclosed that Bergevin will serve as chief revenue officer. Steven Crouse, IFH’s chief financial officer, will have the same role at MVB.
Bergevin will receive a $475,000 salary. He also agreed to 12-month noncompete and nonsolicitation agreements.
MVB plans to cut about 30% of IFH’s annual noninterest expenses. It expects to incur $10.5 million of merger-related expenses.