Greater Bay Bancorp, a $7.5 billion in assets financial services holding company, and ABD Insurance and Financial Services Inc., announced today the signing of a definitive agreement for the acquisition of ABD by Greater Bay Bancorp.
ABD, with over $1.0 billion of insurance premiums serviced and in excess of $100 million in revenue and headquartered in Redwood City, California, is the nation’s 16th largest insurance broker based on 2000 revenues. ABD offers a full range of commercial insurance brokerage activities, including property and casualty, directors and officers liability insurance, employee benefits insurance, retirement planning services, risk management and engineering and loss control services, for small, mid-size and Fortune 1000 companies.
With its network of offices located throughout California, ABD’s market area overlaps the solid footprint Greater Bay Bancorp has established through its network of eleven Northern California bank subsidiaries and multiple financial services divisions. ABD’s focus on mid-size and Fortune 1000 businesses complements Greater Bay Bancorp’s existing and target client base.
Greater Bay Bancorp will issue shares of a new series of convertible preferred stock and cash in a tax-free reorganization for an estimated present value of approximately $193.6 million. That amount includes an initial payment of $130 million in convertible preferred stock and cash, and an additional $63.6 million in convertible preferred stock and cash via an earn-out arrangement over a three-year period, subject to the attainment of prescribed performance goals. Including employee incentives, the total present value of the transaction would be approximately $200 million. The merger, which will be accounted for as a purchase, is expected to be completed in the first quarter of 2002.
Greater Bay Bancorp anticipates the transaction to be approximately 5 percent accretive to 2002 cash earnings per share and approximately 1 percent accretive to 2002 GAAP earnings per share. Greater Bay Bancorp has not included any anticipated revenue enhancements that may be realized from the merger, even though Greater Bay Bancorp’s prior acquisitions have resulted in significant revenue growth.
According to David Kalkbrenner, President and Chief Executive Officer of Greater Bay Bancorp, “ABD’s specialized insurance expertise, extraordinary commitment to client service and outstanding financial performance creates for Greater Bay an unparalleled foundation partner for our comprehensive client-based financial services focus. Given ABD’s location in the San Francisco Bay Area, its superb national reputation and its record of strong internal and acquisition based growth, ABD will allow us to expand our capability to meet the ever changing financial services needs of our clients. From a financial perspective, the addition of ABD is expected to increase Greater Bay’s non-interest income from 12 percent to 30 percent of total revenues, on a pro forma basis.”
Duncan Matteson, Chairman of Greater Bay Bancorp, added, “This partnership with ABD represents a milestone in Greater Bay’s history. The acquisition of a major insurance brokerage firm has been part of our strategic plan for several years, and we are very pleased to be able to execute that plan with one of the preeminent insurance brokerage firms in the nation. When the merger closes, we will welcome Fred deGrosz, President and Chief Executive Officer of ABD, to the Greater Bay Bancorp Board of Directors.”
deGrosz commented, “Our partnership with Greater Bay represents a significant opportunity for our specialists to provide insurance and risk management solutions to Greater Bay’s clients. In turn, our clients will benefit from the vast array of financial services offered by the Greater Bay regional community banking family. We firmly believe that this transaction presents a unique opportunity to provide the Northern California market with a fully integrated solution to complex financial challenges in a rapidly changing economy.”
The terms of the agreement provide for the shareholders of ABD to receive an initial payment of $130 million, comprised of $72.5 million of 7.25 percent convertible preferred shares of Greater Bay Bancorp and $57.5 million in cash. Targeted earn-out payments to be paid in cash and convertible preferred shares, assuming EBITDA goals are met, would amount to $21.5 million, $23.5 million and $25.5 million ($63.6 million on a present value basis) in 2002, 2003 and 2004, respectively. ABD also has the incentive opportunity, based on exceeding forecast EBITDA, to achieve additional earn-out payments.
Key executives of ABD have signed four-year employment and non-competition agreements in connection with the merger. To ensure long-term employee commitment, the merger agreement also requires the establishment of employee incentives to be earned over a five-year period. Completion of the merger is subject to certain conditions, including the approval of the shareholders of ABD and regulatory approval.
Greater Bay Bancorp through its eleven subsidiary banks, Bank of Petaluma, Bank of Santa Clara, Bay Area Bank, Bay Bank of Commerce, Coast Commercial Bank, Cupertino National Bank, Golden Gate Bank, Mid-Peninsula Bank, Mt. Diablo National Bank, Peninsula Bank of Commerce and San Jose National Bank, along with its operating divisions serves clients throughout Silicon Valley, San Francisco, the San Francisco Peninsula, the East Bay Region, the North Bay Region and the Central Coastal Market.
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