Home BancShares Inc. is expanding into Texas with the $919 million acquisition of Happy Bancshares Inc. in an all-stock transaction that the Conway bank says will be "immediately triple accretive" to earnings beginning next year and through 2023.
The acquisition, announced Wednesday before the stock market opened, will give Home BancShares assets of more than $23 billion, a 31% increase. Home BancShares will be the controlling entity and its management team will run the combined banks when the deal closes in the first quarter of 2022.
Home BancShares said earnings per share will increase by 5.5% next year and by 9.2% by 2023. Book value per share will jump 5.1% per share and tangible book value per share is projected at 1.5% as a result of the transaction.
"An opportunity like this doesn't come along but once in a lifetime," John Allison, chairman and chief executive officer of Home BancShares, said Wednesday on a conference call detailing the transaction. "We just felt like this is a perfect match for us culturally [and] geographically."
Both banks' boards unanimously approved the deal, which will deliver 2.17 shares of Home BancShares stock for each share of Happy Bancshares that investors own. The transaction values Happy Bancshares stock at $47.24 per share based on a volume-weighted average closing price per share of $21.77 during the 20-trading-day period ending on Sept. 13.
Happy Bancshares is privately held and has more than 1,300 stockholders.
The investment community and banking analysts reacted favorably to the deal.
The acquisition "measures up to HOMB's high financial bar," Stephens Inc. banking analysts wrote in a report issued Wednesday. Stephens was financial adviser to Happy Bancshares for the transaction.
"We continue to believe the deal 'threads the needle' and drives attractive financial metrics with sound strategic rationale," Stephens analysts wrote. "We're pleased to see the initial investor feedback is positive with stock outperformance."
Investors drove up Home's stock Wednesday, with the bank's shares closing at $22.38, up nearly 6.5% or $1.34 per share.
Allison led Home BancShare's executive team to Amarillo, Texas, Happy's headquarters, for the call with analysts on Wednesday and the Arkansas team was joined by Happy Chairman J. Pat Hickman and Chief Executive Officer Mikel Williamson.
Happy Bancshares will face additional regulatory hurdles as it approaches $10 billion in assets and, as a private company, the lender has gone to market several times with private placement offerings to raise capital for expansions and growth. Both were factors in looking at a merger, Hickman said Wednesday on the call.
"We, quite honestly, have asked ourselves how long can we maintain that model," Hickman said. "We decided to kick the tires and see if there was a suitable match out there."
Home BancShares was a comfortable fit, according to Hickman. "We were tickled when they expressed an interest in our company," he added. "Right now, Florida is their best operating market and we look forward to passing Florida for this company."
As part of the deal, Home BancShares will add Hickman to its board of directors and Williamson will join the Centennial Bank executive team. Other Happy State Bank executives will keep their leadership roles in Texas, Home BancShares said Wednesday.
Happy State branches in Texas will be rebranded as Happy State Bank, a division of Centennial Bank, after the merger is completed.
When the deal closes, Texas will represent 27 percent of Home BancShares' deposits and 29 percent of its loans, Stephens reported.
"This truly is a great opportunity to get into Texas and get into these good Texas markets," Allison said.
Expansion into Texas gives Home BancShares a foothold in key high-growth markets such as Austin, the Dallas-Fort Worth metropolitan area and the suburbs of San Antonio.
Little Rock attorney Garland Binns, who specializes in working with Arkansas banks, noted the transaction is a solid move for Home BancShares.
"The Texas market has and continues to experience excellent growth in the banking sector," Binns said Wednesday. "Happy State Bank is one of the better operated banks in Texas. The acquisition by Home will help increase its footprint in the southwestern U.S. This is a smart move by the management team at Home, which will reap benefits to its shareholders going forward."
In addition, the Stephens report noted that the transaction could boost Home BancShare's interest in merger and acquisition (M&A) activity in Texas.
"We think it's important to note the deal could create a multiyear runway for HOMB's M&A program as the Texas market remains fragmented and should provide more M&A opportunities," Stephens analysts reported.
Allison did not rule out additional transactions for Home BancShares though he emphasized the primary focus is on combining the two companies. "Right now, the most important thing is to get this transaction under our belt," he added.
The Texas holding company was founded in Happy, Texas, in 1908 and today is based in Amarillo. It operates more than 60 branches as Happy State Bank in more than 40 communities in the panhandle and central Texas.
In 1990, Hickman led a group of investors in purchasing the bank, which was then known as First State Bank. The lender became Happy State Bank in 2004 when it made its first transaction.
Happy Bancshares has been on an aggressive growth spurt since, rolling up several in-state banks to fuel expansion. Since 2019, the bank made five acquisitions and exceeded $6 billion in assets.
The bank had six employees and just more than $10 million in total assets in 1990. Out of the 880 banks in Texas, Happy ranked 812th in asset size.
Today, the Texas bank has nearly 1,000 employees, $5.3 billion in deposits, $3.5 billion in loans and $6.3 billion in total assets. The bank is the 25th largest in the state ranked by deposits.
Centennial has about 2,000 employees at 176 locations in Arkansas, Florida, Alabama and New York.
CORRECTION: The HomeBancShares purchase of Texas-based Happy Bancshares values Happy Bancshares stock at $47.24 per share. The share price was attributed incorrectly in an earlier version of this article.