Current Price: $20.34
Offer Price: $18.00 – $20.25
Upside: TBD
Expiration Date: 18th of December
This is a bit different dutch tender offer play – a bet either on the eventual price increase or substantial undersubscription which should push MVBF price upwards.
On the 17th of November, MVB Financial has announced a modified dutch tender offer with an odd-lot provision for 20% of shares. Consideration stands at $18.00-$20.25/share ($45m in total) + $0.09/share dividend to be paid on the 1st of Dec. Directors own 14% of MVBF and won’t participate in the tender. Payment will be made from cash on hand and proceeds from the $40m private placement of notes to certain accredited investors (not many details provided).
Shares are currently trading at the upper limit, eliminating any opportunities to participate in the tender itself. However, MVBF is not your average, sleepy micro-cap bank. Despite its size, MVBF aims to disrupt traditional banking with an intense focus on the fintech sector and fintech innovations. The bank is rapidly growing organically and through acquisitions, while maintaining profitability. Since 2016 MVBF grew its tangible book value from $11/share to $18.66/share. Profitability is also constantly increasing with Q3’20 YTD ROE at 15.4% (13.8% in 2019). The last year has been especially intense on the acquisition front with several Fintech (compliance, fraud detection) and other opportunistic acquisitions already made.
The bank aims to become the fintech bank of choice an already has 19% of its deposits from fintech & gaming industries (both of which exhibit rapid growth):
At MVB, we are leveraging technology, creativity and innovation to modernize as we move from the old model of banking to the new. We welcome disruptors and actually embrace them and invest in them […] MVB strives to be a trusted partner and thus a preferred bank of the fintech industry, a strategy that has brought significant shareholder value. This is an example of our model going beyond traditional banking and leveraging the disruption occurring in the financial services industry to the benefit of MVB shareholders.
You can read a bit more on their strategy in this Oct’19 CEO interview. It is worth mentioning that management is quite promotional (quotes analysts in its press releases and presentations), however, for the current trade to work out that is not necessarily a bad aspect.
Current tender comes at just at 1.08x TBV (at the upper limit), which is substantially below pre-COVID book value multiple. Q3’19 and Q4’19 P/TBV stood at 1.33x and 1.45x TBV respectively.
So the value proposition here seems sound. Management is not participating. I expect the tender to be undersubscribed which will either incentivize management to raise the price (as happened previously with DC-PB.TO) or the low participation will act as a kind of a catalyst to boost MVBF share upwards following tender participation. The market seems to agree on this as in recent days, MCBF used to trade above the upper limit (even reached $21.20/share yesterday).
Downside to pre-announcement prices is 10%.
MVBF
MVB Financial owns MVB Bank, which has 13 locations in West Virginia and northern Virginia.
Two years ago it shifted its focus from a traditional community and mortgage bank to fintech and started investing in this sector. Results were quick to come and in Q2 MVBF reported $13.5m gain on fintech portfolio investment (200% IRR). Since Autum’19 the company has accelerated the new strategy implementation and has made several acquisitions/investments:
- Sept’19 – acquired Chartwell Compliance – integrated regulatory compliance, state licensing, financial crimes prevention and risk management services provider with many high profile Fintech players in the client base.
- Nov’19 – sold four of its traditional banking branches.
- March’20 – merged its mortgage units and formed a mortgage lending JV (47% ownership) with Intercoastal.
- April’20 – acquired Paladin – fraud prevention company, which offers a suite of services for merchants, credit agencies, Fintechs and vendors.
- April’20 – acquired a $140m deposit/loan book from insolvent First State (opportunistic bargain to grow MVB balance sheet).
The company has a significant amount of deposits from the fintech and gaming sectors. As of Q3 fintech, deposits amounted to $365m (56% of those are gaming), which is 19% of the total deposits.
The bank managed to perform quite well and continued to grow (through acquisitions) during the pandemic. In Q3 TBV increased to $18.66/share vs $16.65/share in Q2’20 and $15.20/share in 2019:
Profitability has also stayed in line with the pre-COVID levels. Q3 ROA is 1.63% vs 1.67% in Q3’19, ROE – 15.37% vs 15.69% in Q3’19, and Q3 EPS was reported at $2.07 vs $1.88 in the same period last year.
Shareholders:
The largest shareholder EJF Capital is a large ($13bn AUM) asset management firm focused on regulatory event-driven investing in financials and real estate. They’ve first reported majority ownership in 2016 (over 6%) and increased their stake to 9.6% over the years.
It is difficult to evaluate the riskiness of MVB loan portfolio. However, so far it has been quite resilient to the pandemic. Provisions have increased substantially in Q2 and Q3 – $6.6m and $8.6m vs $1.1m and $0.6m for the same periods in 2019, however still attributed to only 0.4% and 0.6% of total loans respectively. The majority of concessions were made for the hotel businesses.
This seems like an interesting idea. Stock is thinly traded and can be bought on a pullback. Before or after the tender.
so what exactly do we do after the 18th?
1.5X P/B seems to be a fair price to me.
Although the offer ended up significantly undersubscribed, the price was not raised and the company will accept the shares at $20.25/share.