First California Financial Group (FCAL) in Westlake, Calif., officially put itself on the block this week under heat from investors to find a buyer.
A handful of West Coast players could make a run at the $1.98 billion-asset First California, which is profitable and runs 19 branches from the Gold Coast just northwest of Los Angeles down to San Diego. That is one of the densest and richest markets in the United States.
First California's investment bank, Keefe, Bruyette & Woods, could approach the seven logical bidders listed below, analysts and investment bankers say. Officials at these banks declined to comment or did not return calls.
PacWest (PACW): The Los Angeles bank made an offer this spring that management spurned. But no one has more incentive — and few have more wherewithal — to buy First California than Matthew Wagner, PacWest's hard-charging chief executive. The question is whether his direct appeal to shareholders has created too much hostility with First California's CEO, C.G. Kum.
But Wagner's all-stock, $7.25-per-share offer establishes a pricing hurdle that could be tough for other bidders to overcome. First California's shares currently trade at around 151% of its tangible book value. That is fairly rich in today's environment. PacWest's bid values First California at 161% of tangible book.
PacWest can afford to pay that much and perhaps even more for two reasons. Its shares currently trade at around 173% tangible book. It could pay an even higher premium than it already offered without creating any dilutive goodwill, so long as it pays with stock. A number of First California's offices overlap with PacWest's 76 branches, particularly in Los Angeles. That means PacWest's can base its bid in part on potential cost savings from closing redundant locations.
U.S. Bancorp (USB): Richard Davis, CEO of the Minneapolis company, is the sleeping giant in this situation. Wagner's bid was a gamble that the $353 billion-asset U.S. Bancorp will not choose to throw its weight around.
U.S. Bancorp is perhaps the most capable acquirer in banking right now, with almost peerless profitability, efficiency and currency strength. It trades at a multiple of 243% of tangible book. It has more than 250 branches in the Los Angeles area. It is reasonable to assume U.S. Bancorp could outbid just about anyone for First California. But Davis has repeatedly told analysts and investors that he is not interested in doing small, pricey whole-bank deals. His company has focused on trust and other acquisitions that can juice fee income.
Keep in mind that U.S. Bancorp and Wagner are very familiar with each other. Wagner sold the Los Angeles-area bank he built — Western Bancorp — to U.S. Bancorp in 1999 before he joined PacWest.
Umpqua Holdings (UMPQ): Umpqua CEO Raymond Davis had a deal in hand for American Perspective Bank in San Luis Obispo when PacWest's Wagner startled the industry by trumping him with a $58 million cash offer in April. Davis clearly has ambitions to extend his $11.5 billion-asset company's reach into Los Angeles. Wagner's maneuvering has slighted both Davis and Kum, and an Umpqua/First California merger could give them a symbolic victory.
But Davis — in not fighting harder for American Perspective — showed that the bottom line, not emotion, will drive his dealmaking. An out-of-market deal for First California may simply be too pricey to justify for Umpqua, which is based in Portland, Ore. Its shares currently trade at just 131% tangible book, or a discount to the multiple First California trades at. That does not give Umpqua a lot of room to maneuver and avoid dilution.
City National (CYN): The acquisitive $24.4 billion-asset company has the currency and strength in the market to make a bid for First California potentially add up. Its shares trade at 154% of tangible book, which puts it in range to at least match PacWest's offer. The strategic rationale is clear: City National is well-positioned in its hometown of Los Angeles, but acquiring First California would more than double its presence in the wealthy markets of Oxnard, Thousand Oaks and Ventura. Yet City National has recently shown a preference for business-line acquisitions.
Opus Bank: The $2.4 billion-asset company in of Irvine, Calif., is healthy, acquisitive and interested in expanding its 47-branch footprint in Los Angeles and San Diego. Last month it announced plans to open two branches and agreed to acquire ten branches in Los Angeles and San Diego from PacWest. Though that branch deal is small, it could hinder Opus' ability to do another deal, especially a large one. Regulators have discouraged acquirers from tackling multiple acquisitions at the same time.
AmericanWest Bank: The $2.5 billion-asset company in Spokane, Wash., has expanded aggressively in San Diego. First California could be an opportunity for CEO Scott Kisting to build further density in Los Angeles. Kisting has the cash and ambition, and he has said he wants AmericanWest to become a $12 billion-asset bank within five years. But AmericanWest may be in a position similar to Opus Bank's after agreeing last month to pay $23.7 million for Inland Community Bank of Ontario, Calif.
Wilshire Bancorp (WIBC): A pairing between First California and this $2.6 billion-asset company in Los Angeles could make financial sense. Wilshire has 24 branches and trades at a similar multiple to tangible book as First California. That creates an opportunity for a stock-based merger of equals, or near merger of equals. But Wilshire, with offices in Texas and New York, has a very different mission — it is an ethnic bank that focuses on Korean-American customers.