Texas Capital Bancshares, Inc. TCBI recently entered into an acquisition deal with Independent Bank Group, Inc IBTX, per which the former will merge with the latter in an all-stock merger of equals. The combined holding entity will operate under the name of Independent Bank Group, headquartered at McKinney, TX, while the name of the combined bank will be Texas Capital.
Additionally, retaining the Independent Financial branding, operations in retail locations in Colorado will continue. The combined company, for a total market value of $5.5 billion, will trade under the symbol "IBTX" on the Nasdaq Stock Market.
The deal, approved by the boards of both banks, on completion will be listed as a premier Texas-based super regional bank.
The combined entity is aimed at capturing market opportunities and boosting client base. Moreover, the companies’ expanded scale, technological advancement and increased product offerings will help capitalize its market share.
However, the deal awaits certain customary approvals by shareholders of both companies and other closing conditions. The transaction is anticipated to close in mid-2020.
Terms of the Deal
Per the terms of the deal, each common shareholder of Texas Capital will get stock equivalent to 1.0311 of Independent Bank Group shares for every Texas Capital share held. Specifically, Texas Capital shareholders in total will own about 55% of the combined entity, while shareholders of Independent Bank Group will own the remaining.
Further, shareholders of the combined entity will be entitled to an annualized dividend on common stock of $1.00 per share after the deal’s closure, subject to board of directors’ approval.
Texas Capital and Independent Bank Group will create the combined entity, with $48 billion in assets. Strategically, the combined entity will enhance through advanced technologies, innovative products and core deposit business, creating a competitive edge in Texas.
Also, the combination will cater various needs of businesses, professionals and individuals with diversified products. On completion, Texas Capital and Independent Bank Group, maintaining the strong working cultures, aim to offer superior client services.
Members from both Texas Capital and Independent Bank Group will lead the combined entity. The organization’s board of directors will include seven directors from Texas Capital and six from Independent Bank Group. Independent Bank Group chairman and CEO David R. Brooks will lead as chairman, president and CEO of the combined entity, while Texas Capital president and CEO C. Keith Cargill will act as a special advisor to the CEO assisting in retaining clients and serve as advisor on key strategic initiatives.
Cost synergies are anticipated to approximate around $170 million on annual run-rate cost savings, boosting profitability and supporting sustained growth.
Per Texas Capital’s expectations, the deal is likely to be 14% accretive to earnings by the first full year post closure, while around 27% TBVPS accretion and 26% EPS accretion is expected for Independent Bank Group. Such expectations assume 75% phase-in of cost savings.
The combined entity is likely to record operating and return metrics with cost savings on 75% phased-in basis, on a pro forma basis. Notably, return on tangible common equity is likely to approximate 15%, while return on average assets is projected at 1.3%.
Goldman Sachs & Co. LLC, a unit of Goldman Sachs GS, acted as financial advisor for Texas Capital, while Keefe, Bruyette & Woods, acquired by Stifel Financial , acted as financial advisor for Independent Bank Group.
In the current scenario, banks are moving toward consolidation to dodge the heightened costs of regulatory compliance and increased investments in technology, in a bid to be competitive. Furthermore, the current interest-rate scenario has also taken a toll on banks’ net interest margins, thereby adversely impacting overall profitability.
Therefore, such moves have instilled optimism in investors about banks’ growth prospects. Notably, shares of Texas Capital and Independent Bank Group have rallied nearly 11.4% and 16.9%, respectively, over the last three months.
Currently, both Texas Capital and Independent Bank Group carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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