Deal Structure Profile: Alerus/HMN Financial Merger

In a uniquely-structured transaction, Alerus Financial Corporation will acquire HMN Financial in an all-stock deal valued at $116.4 million. Alerus is a commercial wealth bank and retirement services provider while HMN is a savings and loan holding company. 

“The Merger represents the twenty-sixth acquisition for Alerus since 2000 as part of its long-term plan to continually expand its business segments,” according to the companies’ joint press release. “[T]he combined company will have approximately $5.5 billion in total assets, $3.7 billion in total loans and $4.3 billion in total deposits, assets under administration and management of approximately $43.1 billion, with 29 locations across the Midwest, as well as Arizona.” 

This deal is structured as a direct merger where the acquiring company and target merge directly into one another. According to DealPulse’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of each publicly-announced transaction over $25 million, just 10% of mergers since 2007 years are structured this way. The vast majority of deals (nearly 78%) are structured as a reverse triangular merger. 

Type of Merger – All Industries, 2007-2024

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Source: DealPulse

In triangular mergers, the parent company acquires the target via a subsidiary, making the parent technically not a party to the deal – so shareholders of the parent company do not need to approve the merger – and the acquired company will be held in a separate legal entity. In a reverse triangular merger, the target company survives as the subsidiary so the company likely will not need approval from third parties contracted with the target or reapply for certain government licenses.  

Type of Merger – Financial Institution Deals, 2007-2024

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Direct mergers are much more common when the target is in the financial services industry, representing 45% of deals during the period, narrowly topping reverse triangular mergers. Under a direct merger, all assets and liabilities of the target are transferred directly to the buyer, exposing the acquirer to claims by the target’s creditors. 

For the deal, the parties agreed on all equity consideration, which is a rarity appearing in just 14% of deals 2007-2024 across industries. 64% of deals use cash consideration and 22% use a mix of cash and equity consideration. In the financial institutions industry, the mix shifts to approximately 26% all equity, 37% cash, and 37% mixed. For this transaction, the companies state, “the Merger is expected to qualify as a tax-free reorganization for HMNF stockholders.”

Alerusis advised by law firm Barack Ferrazzano Kirschbaum & Nagelberg LLP, and financial adviser Raymond James & Associates, Inc. HMN Financial is advised by Ballard Spahr LLP, and financial advisor D.A. Davidson & Co.