When best-laid plans fall short, buyers can abruptly become sellers

Sometimes bank mergers are the result of a growth strategy that didn’t follow the script.

That was the case with Blue Hills Bancorp in Norwood, Mass., which recently agreed to be sold to a much larger competitor — Independent Bank in Rockland — in the ninth-largest bank deal this year.

When the $2.8 billion-asset Blue Hills completed a second-step conversion in 2014, it did what a lot of mutuals do once they have converted to a commercial bank — it went on the hunt for acquisitions.

But its efforts repeatedly fell short, according to a new regulatory filing. Once it entered negotiations with the $8.4 billion-asset Independent, Blue Hills — which never completed a bank acquisition in its nearly 150-year history — conceded that it had limited options.

The deal highlights a key narrative in bank M&A: Many smaller institutions, frustrated in their efforts to buy up rivals, become sellers. Banks like Independent stand to benefit.

Independent has bought five banks since late 2012 and has an agreement to buy Milford National Bank & Trust.

Independent is “in the financial position to win those opportunities over us, and I don’t see that changing in the next few years,” William Parent, Blue Hills’ president and CEO, said in an interview shortly after announcing the deal on Sept. 30.

“As we looked forward … we started to see some dynamics — a hypercompetitive marketplace with a significant focus on quality funding and quality operating earnings,” Parent said. “To really continue along the path, we said maybe this is the time to fully leverage what we have and find a partner.”

Blue Hills investigated several acquisition targets after its conversion, but it decided they were unsuitable or it could not reach an agreement that shareholders would favor, the filing said. It held talks with an unnamed out-of-market bank in 2016 and early 2017, but the potential deal fell apart over pricing and other terms.

By October 2017, Blue Hills’ board had decided that a merger of equals would be the best way to add heft and position itself to make acquisitions.

Parent met with the CEO of a bank of similar size later in October 2017 to discuss a merger. While a second meeting took place in December, discussions fizzled in March “due to concerns regarding the viability and magnitude of the potential benefits of a transaction,” the filing said.

That provided an opening for Christopher Oddleifson, Independent’s president and CEO.

Merger talks between Blue Hills and Independent began in January. At a Jan. 5 meeting, Oddleifson expressed an interest in buying Blue Hills. Another meeting, held a month later, allowed Parent and Independent executives to share thoughts on each bank’s strengths and discuss what an integration might look like.

M&A requires an open mind and the ability to move quickly, the head of Independent said in an interview after the deal announcement.

“When a board raises its hand and says they want to talk, we like to be at the table,” Oddleifson said. “Since we can’t dictate when those banks will come available, we evaluate them as they come along — it was opportunistic timing driven by the Blue Hills board.”

Still, Blue Hills had its investment bank contact other potential acquirers in May and June. One bank backed off after initially expressing interest; another said it could pay no more than $24 a share, or roughly $646 million.

By late May, Parent and Oddleifson had started mapping out pricing. They agreed to delay additional talks until August so that each institution could report its second-quarter financial results.

A nondisclosure agreement was signed on Aug. 1. About two weeks later, the companies agreed to a tentative exchange rate of about 0.25 shares of Independent stock and $5.40 in cash for each Blue Hills share. A fifth of the consideration involved cash.

After conducting due diligence, Independent on Sept. 10 lowered its offer to 0.23 shares of stock and $5.25 in cash for each share of Blue Hills stock. The revision was based on assumptions for fair value marks, expenses and growth, the filing said.

Blue Hills’ board unanimously accepted the offer, which translated to $727 million, on Sept. 19. Independent’s directors unanimously backed the deal the following day, and a press release was issued.

The deal value priced Blue Hills at 178% of its tangible book value. The acquisition is expected to close in the first half of 2019.

Blue Hills has 11 branches around Boston and three on Nantucket under the name Nantucket Bank. Independent expects to incur $36 million in pretax merger-related charges.

The acquisition will take Independent over $10 billion in assets, where it would face more regulatory scrutiny and a cap on interchange fees.

“They are a great partner to add and they take us over a big threshold,” Oddleifson said. “Combined, we could do things we couldn’t have done by ourselves.”

Hilary Burns contributed to this article.