Home Bancshares Inc.'s move into the Lone Star State with its announced acquisition of Happy Bancshares Inc. is unlikely to remain its only transaction in Texas.
On a conference call to discuss the transaction, Chairman, President and CEO Johnny Allison said the Happy Bancshares deal is just the beginning of Home Bancshares' growth in the state and noted that "this franchise will continue to grow in Texas."
"This is our first base here. We'll be playing off of this foundation. [Happy Bancshares President and CEO] Mikel [Williamson] will be helping us as we go forward in the state of Texas for other opportunities," Allison said on the call.
For now, Home Bancshares will focus on closing the Happy Bancshares transaction, Allison said, but the company will remain active in M&A discussions with a focus on Florida and Texas. Equity analysts said the Happy Bancshares deal will give Home Bancshares an advantage as it looks for more M&A in Texas.
"As well as being a sizable entry into Texas for [Home Bancshares], this deal also positions that bank to compete more aggressively for incremental M&A in the state," Piper Sandler analyst Stephen Scouten said in a report.
Stephens analyst Matt Olney labeled the move a "springboard" for more M&A in the state.
The transaction marks Home Bancshares' first whole-bank deal since 2017 when its unit, Centennial Bank, purchased Stonegate Bank. The deal is of notable size, with Happy Bancshares' $6.26 billion in total assets as of June 30 representing more than 35% of Home Bancshares $17.63 billion in total assets as of the same date.
Approaching $10 billion in total assets and the "regulatory intensity" that comes with that growth played a role in Happy Bancshares' decision to sell, Chairman Pat Hickman said on the call.
Bank investors have typically been skeptical of large deals this year, but they seem initially upbeat on Home Bancshares' deal with the company's stock closing Sept. 15 at $22.38 per share, up 6.4% from its Sept. 14 closing price.
The addition of Texas to Home Bancshares' current footprint — which is concentrated in Arkansas and Florida — boosts the company's long-term growth outlook, both Piper Sandler's Scouten and Keefe Bruyette & Woods analyst Brady Gailey wrote in their respective reports on the deal.
Gailey said Home Bancshares' pro forma franchise will have locations in two of the best Southern growth markets, Texas and Florida. "Overall, we like the deal and continue to recommend this best-in-class company," Gailey said.
Scouten noted that he was "pleasantly surprised" by the financial impact of the deal, pointing to the 9.2% accretion to 2023 earnings per share, 5.1% accretion to book value per share and 1.5% accretion to tangible book value per share.
But the hyper-competitive Texas market, the large size of the deal and recent bank buyers' stock performance could cause some near-term concern for investors, Raymond James analyst Michael Rose wrote in a report.
Still, Home Bancshares is moving into the state with a "reputable partner ... with scale," Rose said.
On the deal call, Happy Bancshares' Williamson said Home Bancshares' size will "accelerate" lending efforts in cities like Dallas and Austin.
"We've had constraints as a privately owned company that [Home Bancshares] actually gets to open us up a little bit from some of those constraints, and we can go out and we can lend in a much larger scale in those metropolitan areas," said Williamson, who will join Centennial Bank's executive team.