Edward Herlihy is a partner and co-chairman of the Executive Committee at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Herlihy and Matthew M. Guest.
In 2013 we’ve seen the welcome return of healthy, growing community banks acting decisively to become regional players through transformative mergers. History has demonstrated the most successful banks have been built through thoughtful stock-for-stock mergers that pair two strong firms in a deal and governance structure that acknowledges the culture and contributions of each.
Today’s smaller and midsized banks that are poised to grow have recognized that current business and regulatory challenges weigh more heavily on smaller institutions, and that jointly realizing cost savings and revenue synergies can create significant value for each company’s shareholders. In a disciplined pricing environment, sellers and acquirers alike are more focused on essential factors like cultural and geographic fit, shared values and business practices and a commitment to serve the communities where they operate. And in announcing these stock deals there is a shared interest in pricing terms (including in the important area of tangible book value dilution) that will be well received by the market, recognizing the pairing is a long term decision creating significant scarcity value.
